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Operator: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LightPath Technologies Third Quarter 2026 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, May 7, 2026, and the earnings press release accompanying this conference call was issued after the market closed today. I'd like to remind you that during the course of this conference call, the company will be making a number of forward-looking statements that are based on current expectations and involve various risks and uncertainties as discussed in its periodic SEC filings. Although the company believes that the assumptions underlying these statements are reasonable, any of them can be proven to be inaccurate, and there could be no assurances of the projected results would be realized. In addition, references may be made to certain financial measures that are not in accordance with generally accepted accounting principles, or GAAP. We register to these non-GAAP financial measures. Please refer to our SEC reports in certain areas of our press releases, which include reconciliations of non-GAAP financial measures and associated disclaimers. CEO, Sam Rubin, will begin today's call with a strategic overview of the businesses and recent developments for the company, while CFO, Al Miranda, will then review financial results for the quarter. Following the prepared remarks, there will be a formal question-and-answer session. I would now like to turn the conference over to CEO, Sam Rubin. Sam, the floor is yours. Sam Rubin: Thank you, operator. Good afternoon to everyone, and welcome to LightPath Technologies Fiscal Third Quarter 2026 Financial Results Conference Call. We report today our latest quarterly results with continued momentum of strong top line growth, continued buildup of our backlog with a strong book-to-bill ratio and improvements in our EBITDA and overall financial performance. All of this is a result of a strategic shift we put in place and have been working to execute on over the last few years. A strategy that leverages our core technologies, coupled with carefully curated acquisitions that allowed us to shift to a vertically integrated provider of high-value infrared optics and camera systems, a shift built around higher revenue and higher gross margins. The third quarter carried that momentum with record revenue, broader customer adoption, a deeper system backlog and just as importantly, stronger margins and cash flow. The LightPath of today looks very little like the component supplier we were a few years ago. We now cover the full stack, proprietary materials, optical assemblies and complete imaging systems. In a moment, I'll touch on that shift, then walk through the programs driving the backlog, the Amorphous acquisition and where growth goes from here. First, BlackDiamond, our proprietary chalcogenide glasses, including those licensed from U.S. Naval Research Laboratories. Those anchor the platform as a domestic supply chain secured infrared glass that is both an alternative to germanium and offer significant advantages in overall system performance. This aligns with the fiscal 2026 NDAA, National Defense Authorization Act, which requires U.S. defense programs to move off of glass and optical components sourced from China, Russia and other covered nations no later than January 1, 2030. Since acquisition cycles starting now, many of our assemblies, cameras and imaging systems are already engineered to those requirements, positioning us as a natural supplier of choice and well ahead of the rest of the market that is just starting to plan their alternatives to Chinese-made materials and optics. It has been roughly a year since we acquired G5 Infrared, the maker of the industry's leading long-range infrared cameras for surveillance and Counter-UAS. G5 is a clear example of what our model can offer. Pair a strong stand-alone business with one of our unique differentiators, in this case, the in-house produced germanium alternative glass and a secured vertically integrated supply chain and the acquired company can execute at a level competitors simply cannot match. In the last year, G5 has booked more than $100 million of new orders, helped by border patrol and Counter-UAS tailwinds. We've publicly announced we are redesigning the cameras to use our BlackDiamond glass. And even before we have completed those redesigns, we already saw an influx of orders for those redesigned cameras. In fact, we are at a point that before we started any real production of the new redesigned cameras, we already know we will need to add more capacity to serve an even stronger demand in the near future. The capacity theme is something we're seeing across the entire business, and I will expand on that some more. It is actually a good segue into other parts of the business. So before I get back into the camera products and then other programs, I will talk about the acquisition we did that we announced last quarter of Amorphous Materials in Texas. Amorphous is a 50-plus year-old manufacturer with complementary technology for glass smelting of chalcogenide, particularly for large diameter optics. Amorphous was founded by one of the pioneers of commercializing this kind of material. I've mentioned it during the last call, but just to reiterate the importance of the technology, I will remind everyone that in optics, the further you want to see the larger the optics needs to be. Until now, with our existing or prior glass melting technology, we've been able to provide BlackDiamond optics up to 5 inches in diameter. Amorphous now unlocks the ability to do larger sizes up to as much as 10 inches and more later on. This has opened the market to large diameter systems, which we need for G5, but also critical in other long-range imaging systems and in particular, satellites for missile detection and tracking. But back to capacity. Acquiring Amorphous gave us an immediate boost to glass production capacity. So between what we have been doing internally and the Amorphous acquisition, we pretty much doubled our glass capacity, and it is nowhere near enough. As we will discuss again and again here, we are investing in capacity in critical areas, and glass is definitely one of those. Having now 2 separate locations to make glass in, one in Orlando and one in Dallas, Texas, definitely affords more flexibility and expansion as well as good contingency planning. To that extent, we plan to move Amorphous into a larger building nearby our Visimid uncooled camera operation in the coming months. This is important because not only is demand for glass outstripping supply right now, even after doubling the capacity, but indicators are that this growth trend will continue, and we will need to continue to add capacity in the next few years. To that extent, in Orlando, too, we have been adding more glass melting capacity as well as capacity and capabilities in other parts of the process downstream, that is after the glass melting. This capacity and those capabilities updates is happening across the entire organization in manufacturing locations in the U.S. and Latvia. And then, of course, the cameras and assemblies business. This quarter that we're reporting in, they represent 44% of the revenue. But more importantly, they represent more than $75 million of our backlog. The assemblies and cameras are actually internal customers for our vertical integration, hence, driving much, if not most, of this explosive growth in demand for glass and optics. But this is just the case for the products that use BlackDiamond. As of today, while all of our assemblies use BlackDiamond, only 2 of the G5 cameras are based on BlackDiamond glass. The remaining G5 cameras were still using germanium. The acquisition of Amorphous was a missing piece in order to complete the redesign of those G5 cameras. Amorphous technology of melting our glass in larger size was needed in order to use BlackDiamond in G5's bigger cameras, which is really the majority of their revenue by dollars. The same applies for larger assemblies. Our optical assemblies business, which has been growing like crazy for the last few quarters, just like the G5 was limited by the size of the glass we could make. Amorphous' large diameter melting now is unlocking a significant business growth in both those areas of the business, assemblies and complete camera systems. How does this tie into the capacity discussion? When we look at our current cameras and assemblies business, and we say it is around $75 million of new orders booked, that is all before we completed the redesign and the new products that are now utilizing the large diameter BlackDiamond. So with the risk of stating the obvious, we expect that over the next few months, we will see another step function in growth in demand for our cameras and assemblies as we redesign them or design new ones utilizing this new capability of large diameter. This will, therefore, require us to prepare more capacity, which is what we're doing now. This includes not only additional capacity in glass and downstream process, but also growing our assemblies capacity, adding shifts and in some places, adding space to be ready for that additional growth. All of that is happening now across all of our facilities in the U.S. and Europe. Additionally, to support this growth and better position LightPath, we recently announced 2 senior additions to the leadership team. Doug Schoen joined us as Senior Vice President of Global Sales; and Ryan Workman joined us as Vice President of Business Development and Product Management, both effective in early April. Doug is a retired U.S. Navy captain with over 25 years in aerospace and defense, having led global sales organization at Elbit Systems of America, Honeywell and Collins Aerospace, managing portfolios north of $1 billion. His background in international defense sales and foreign military sales programs is exactly what we need as we scale globally. Ryan brings with him over 15 years in the defense and federal law enforcement sectors and has a particularly relevant track record at Silent Sentinel, which was later acquired by Motorola Solutions, our largest customer. Ryan is the one that grew the U.S. business of this customer of G5 Infrared to what it is today, including securing significant Counter-UAS and DHS border surveillance contracts. That direct experience in our end markets, combined with Doug's enterprise-level relationships gives us commercial horsepower to convert our growing backlog and strong technology position into sustained scalable revenue growth. Okay. Before I move on to financials, I will give a quick overview on the major programs, but also point out that on many of those, there are specific line items in the U.S. defense budget, which was released a couple of weeks ago and is available to the public to research online. Starting with the NGSRI that as you will see in the budget, is fully financed and even accelerated some of the program. We are very pleased with our progress so far and continue to deliver everything according to plan and even better. However, as I described earlier in previous few times, the only updates we can share in detail about the programs or any updates that are shared by our customer, Lockheed Martin or their customer, the U.S. Army, which as of now has not had any major updates, so we can't really update too much. Navy SPEIR is on schedule, and we expect some new orders with the new federal budget now being released. Border tower, we were expecting already some significant orders to be released, but it seems DHS has not released the funding yet. So that is not an indication in any way of anything changing to the worse or to the better in any way, simply has not moved forward. Some of the smaller programs, such as them that I haven't really indicated by name, so Counter-UAS, this is primarily the Air Force C-UAS programs for which we received multiple new orders. Currently, around $30 million of our backlog is Counter-UAS, again, primarily Air Force SUADS programs. A new airborne system that we previously mentioned and that uses our BlackDiamond material to replace an existing system with far better performance now. This program continues to move quickly. We completed the qualification, an extremely important step and are now preparing for an award towards the end of the summer or early autumn. Space programs, we have a few of those in the work. Most of them are early stages in design and unfortunately, very confidential, so very limited in what we can share. And lastly is the Apache program, which we do not have any new developments there, and there is some uncertainty around it as we're waiting for to see the funding allocated to it. Okay. So specific programs. Of course, as we continue to grow, just like with our press releases, it will become fairly noisy and overly detailed if we go into details about every multimillion dollar program. So we're likely going to focus on the large ones going forward with some updates on others as we can. To close Phase 1 of the transformation, we've moved from components to systems and from commoditized supply to strategic technology leadership. We continue to swap constrained China-linked materials for domestic scalable proprietary alternatives, and we are converting that edge into program wins, large contracts and long-term relationships with top-tier defense and industrial customers. The next phase, rapid scaling over the next 3 years, backed by our strong war chest of cash is now beginning and is aimed at capturing meaningful market share. Now I'd like to turn the call over to our CFO, Al Miranda, to talk about the actual numbers. Al Miranda? Albert Miranda: Thank you, Sam. I will keep my review to a succinct highlight of the financials this quarter. As a reminder, much of the information we're discussing during this call was also included in our press release issued earlier today and will be included in the 10-Q for the period. I encourage you to visit our Investor Relations webpage to access these documents. Revenue for the third quarter of fiscal 2026 increased 109% to $19.1 million as compared to $9.2 million in the same year ago quarter. Sales of infrared components were $6.1 million, or 32% of the company consolidated revenue. Revenue from visible components was $4 million, or 21% of the consolidated revenue. Revenue from assemblies and modules were $8.4 million or 44% of the consolidated revenue. Revenue from engineering services was $0.6 million, or 3% of consolidated revenue. Gross profit increased 161% to $7 million, or 36% of total revenues in the third quarter of 2026, as compared to $2.7 million, or 29% of total revenues in the same year ago quarter. The increase in gross margin as a percentage of revenue is primarily driven by the increase in revenue from assemblies and modules, which generally have a higher margin. In addition, gross margins for infrared components have improved due to a more favorable mix and the resolution of certain manufacturing yield issues that negatively impacted the prior fiscal year. Operating expenses for the third quarter of fiscal 2026 included a fair value adjustment of $3.4 million related to the G5 earn-out liability, which will continue to be adjusted through the operating expenses until it is fully paid out. Excluding this amount, operating expenses increased $1.8 million, or 30% to $7.8 million for the third quarter of fiscal 2026 as compared to $6 million in the same year ago quarter. The increase was primarily driven by the integration of G5 Infrared and AML, increased sales and marketing spend, higher information technology spend to meet customer security requirements and increased SG&A personnel costs associated with filling executive roles, as Sam mentioned, our salespeople and incentive compensation accruals. Net loss in the third quarter of fiscal 2026 totaled $4.1 million, or $0.07 per basic and diluted share, as compared to a net loss of $3.6 million, or $0.09 per basic and diluted share in the year ago quarter. The year-over-year change in net loss was primarily attributed to the change in fair value of acquisition liabilities for the earn-out related to the acquisition of G5 Infrared. Adjusted EBITDA for the third quarter of fiscal 2026 was $1.1 million positive, compared to an adjusted EBITDA loss of $1.6 million for the same year ago quarter. This represents our third consecutive quarter of positive adjusted EBITDA and was primarily attributable to the increase in gross profit driven by higher sales, partially offset by increased SG&A and new product development costs. Although not perfect, we believe that adjusted EBITDA is a better indicator of core operating performance by excluding noncore and noncash items. Cash and cash equivalents as of March 31, 2026, totaled $55.2 million as compared to $4.9 million as of June 30, 2025. Since the raise in December, we used $7 million for AML acquisition and $7.3 million went toward the year 1 earnout for the G5 acquisition. I want to point out that a portion of this earnout payment was required to be recorded in operating cash flows in accordance with GAAP. The operating cash flow looks noisier than reality because of G5 outperforming the earnouts, which GAAP requires to be classified as operating cash activity. If you set aside the GAAP reporting quirk related to the earnout, then operating cash outflow year-to-date would have been $1.3 million. That modest outflow is attributed to working capital, specifically prepaying suppliers for long lead materials to support that growing backlog that Sam spoke of and that's partially offset by customer prepayments. The $55 million cash balance on hand gives us plenty of runway to keep executing on our growth strategy and fund the CapEx and working capital needed to deliver to the growing backlog. Total backlog as of March 31, 2026, was approximately $110.6 million, an increase of 196%, compared to $37.4 million as of June 30, 2025. I'd like to take a step back and give some perspective. Since Q3 last year, on a year-to-date basis, we doubled our revenue from $25 million year-to-date last year to $50 million year-to-date this year. Our backlog is $110 million and continues to grow. This is a substantial amount of growth for a company our size, and I'd like to thank everyone in the organization for a great effort on delivering more and more to our customers every day. To our investors, we are well positioned to continue to grow substantially. We have the resources and cash in place to deliver. Our internal efforts are all about execution to the plan of delivering on the backlog and the growth in the backlog. Our focus for fiscal year 2026 and beyond supports the business opportunities that Sam described. We have a detailed go-to-market strategy that we are funding to target key high-growth areas. Our prior year, current year and future investments in manufacturing are and will continue to bear fruit in terms of quality and on-time delivery. And as a result, in the coming quarters, I expect we'll see margin expansion. With that, I will turn the call back to Sam. Sam Rubin: Thank you. Thank you, everyone, for joining us today. From here, the work shifts to execution. We've built a vertically integrated platform around our own materials technology, one that sits squarely where the defense procurement is heading. The numbers make the point. Over the last 12 months, our revenue has more than doubled and backlog indicates a continued trend. The doubling the size of our manufacturing business in 12 months is a big task and undertaking. Doing it again, continuing to grow at such rate is a monumental task. So with that in mind, I would like to echo what Al just said and take a moment to acknowledge the hard work, dedication and commitment of the entire LightPath team. You, my team, have been doing an incredible job getting us here and are continuing to do a great job preparing us for this continued growth. Thank you for everyone involved in this. With that, I'll turn the call over to the operator to begin Q&A. Operator? Operator: [Operator Instructions] We'll take our first question from Jaeson Schmidt with Lake Street. Jaeson Schmidt: Sam, I just want to start with your comments on the expectation for the step function in demand over the next few months here. Do you envision that being pretty broad-based? Or is that really coming from -- or concentrated in a couple of programs? Sam Rubin: What I see is that right now, areas where -- I'll talk first about cameras and about assemblies. The cameras where we've been having this enormous backlog is mostly existing customers. So these are customers that have integrated our cameras already a while ago into their pan tilt systems or gimbals such and are growing with the orders from them have been growing as those customers grow, in particular, Motorola, which we very much value the relationship and the business there. But it's really existing business that is growing linearly. As we now start switching over to the BlackDiamond and unlocking both more types of camera, but more specifically, really unlocking our availability and our capacity to -- I'm not even sure what the next limit will be, but it's not going to be limited by material as everyone else is. I expect many other customers to switch over to our cameras. And the step function there will be from taking a larger market share of the same type of product we've been doing until now, but simply that we are positioned in a way that we're the only ones that really can produce as many cameras as anyone wants. In the assemblies, it's a bit different. In the assemblies, we've been focused on a subset of the whole assemblies industry, if you would, or assembly available market because we were limited by the size of glass we could do. So we could not make long-range assemblies or zoom lenses, if you would, that get bought by some of our competitors and many of our customers. With this now capability and with some of the new materials we've been already commercializing over the last few months and haven't talked really about too much, we can now design and are designing a lot more new assemblies that are going to take market share of areas we haven't played. So 2 step functions, both enabled by the same thing, but for different reasons. Jaeson Schmidt: Okay. That makes sense. And then I know it's still early, like you noted, but thinking about sort of in space communication or the space programs in general. How many engagements or conversations are you having these days with customers? Sam Rubin: We have 2 that we are fully engaged in, meaning they're already fully designing our product delivering -- sorry, 3 of those, 3 customers that are designing. I'm not sure what programs we have that are much earlier than that. I usually know of them when it comes to the point that they're actually engaged on technical dialogue or want to talk numbers. And those are not free space communication, just to be clear, those are all camera systems on satellites pointed down to look for missile launches and detection. Jaeson Schmidt: Got it. And final one for me, and I'll jump back in the queue. With these capacity expansion plans, how should we think about CapEx over the next 12 months? Albert Miranda: So good question, Jaeson. We we're still -- the CapEx we're spending right now is capacity driven. It's -- so as the backlog grows, we're constantly reevaluating. That said, there are long lead times in the CapEx process. So we have to get some things moving quicker than others. I don't want to say exactly what we're going to spend in the near term. But to put it in perspective, in Q3, Sam and I approved $6 million in CapEx to be spent in order to not only meet the current backlog, but what we think is going to be beyond that. Operator: [Operator Instructions] We'll take our next question from Austin Moeller with Canaccord. Austin Moeller: So do you expect like you would receive more funding through the $54.6 billion for the Drone Autonomous Working Group or from the DHS budget dollars that were appropriate in the reconciliation bill? And would the DAWG funding shift revenue mix further into assemblies and modules and raise gross margin further for drones? Sam Rubin: Okay. I'll start by answering the other way around. First of all, it will be mostly assemblies and cameras, definitely. By far, we're actually -- the more assemblies and cameras business we are, the less we're taking business in optical components because we would rather use that same capacity to make assemblies and cameras, which are much, much higher margins, which answers really your second part of the question. In terms of the funding, I'd say it's all over. So drone -- from the drone dominance, we are receiving already orders. We have a few million dollars of orders of optical assemblies that go into drones. I'll try next time to break that out and give a bit more color to it, but we're starting to receive volume orders of optical assemblies that get coupled to cameras that go into drones, and we're probably the lead supplier in the U.S. for that by far, I'd say. From other areas from the NDAA and such or which part of funding, I think it depends. existing programs, they all come the programs of record, they come from the NDAA funding and such. DHS comes from the Big Beautiful Bill mostly and so on. But in addition to all of that, what we're also working on and is a different type of funding that is funding to support expansion of capacity. And we are working -- it is very early stage, but we're working with different parts of the government, Office of Strategic Capital and so on to secure some of that. It will not be in the near future, but it's definitely something we're looking at for next fiscal year to support some of the expansion. Austin Moeller: Okay. And in some of our conversations with primes, it sounds like there's already an active effort where they're replacing smaller diameter lenses with BlackDiamond glass. So what factors might keep them from swapping out larger diameter germanium lenses with BlackDiamond? Is it just a matter of time? Or is there technical considerations? Sam Rubin: So first of all, not everyone knows that it's possible. This is completely new. And even last week, I met a customer at the trade show that still didn't know about that, even though we've been shouting it from the top of our lungs. So there's quite a bit of education to be done. However, chalcogenide glass, BlackDiamond altogether is a softer material. So design aspects of it are different. It's not that it cannot be used for larger diameter lenses or larger diameter optics. You need to take different mechanics assumptions into account when you're doing that design, which is why we work very, very closely with the customers on those designs. We leverage our experience with the material to help educate them to make sure that their design is sustainable mechanically afterwards. Simply, it's a different strength of material compared to germanium. That said, there's nothing inherently that prevents it from completely replacing or using it in all these same dimensions and uses. And in many of them, it's actually much better because the coefficient of thermal expansion of our glass is very, very similar to that of aluminum or aluminum depends which country you're in and makes it much, much easier to mount it in terms of gluing it and hard mounting it into systems. So it's mostly education of the customers is the short answer. Operator: We'll take our next question from Richard Shannon with Craig-Hallum. Richard Shannon: Congrats on another good quarter here. I guess one way I wanted to talk about the capacity limitations you were having and you're trying to relieve with more investment here. But how do we think about at a high level here, what your revenue ceiling is now? And where can this go in the next, I don't know, 2 to 4 to 6 quarters as you're adding more capacity? Sam Rubin: Okay. I get this one. I would say that everything we have booked and we have in our backlog, we can deliver. There's no risk there that we can't deliver it. What we're planning towards is more the second half of the next fiscal year and increased expansion then. So our backlog is mostly for the next 12 months, the next fiscal year, but not completely. However, it's probably heavier towards the second half where we do need to add some capacity. Richard Shannon: Okay. Fair enough. I want to ask about the space programs. I know, Sam, you mentioned that most of these are confidential, but just kind of at a high level here, especially some of the bigger ones that I think you're hunting here. When do you expect to have decisions on these? Will this happen this calendar year? Is it more of a next year? And any way to help us scale kind of the whole space opportunity relative to some of the other ones like Counter-UAS, border patrol, Navy programs, et cetera? Sam Rubin: Yes. So time line, I have to admit, I am not completely confident on it because this is fairly new to us. We have not done anything of that type, meaning space programs and with the tight requirements on the assemblies and the cameras for that. So there's some learnings there. I would say that the time lines I'm seeing now on prototypes and on development are such that it would be at least a year before anything meaningful in terms of knowing where the wind is blowing even is available to us. In terms of -- sorry, what was the second half of the question? Richard Shannon: Just scaling the size of the opportunity in space versus all the other bigger buckets you talked about in your potential. Sam Rubin: Yes. So I think actually, I don't have the numbers in front of me, but during the Investor Day that we had in February, I gave some numbers there. And I explained that typically a satellite like that is about $40 million, $50 million in total cost. 1/3 of that is the entire optical system payload. And of that, we are just doing the telescope. We're not trying to do the complete camera system or anything like that, just the optical assembly, which is in the millions per satellite, but let's say, below $5 million per satellite kind of thing. And the numbers are fairly well published. Richard Shannon: Okay. Great. Last question is for Al on the gross margins here. So obviously, adding capacity has a little depreciation and some other fixed costs here. Just wanted to know if as you're adding capacity, is there any different view kind of longer term what you think of the gross margin? I mean, you talked about getting to 40% to maybe even higher. Wanted to know how that has changed here with kind of the new scale that you're targeting. Albert Miranda: Yes. Great question. We still expect margins to grow. However, we are scaling fast. And there are some costs in the short-term associated with that. So it will slow down our ramp from where we are today, 36% to 40%, but not much. We're talking a quarter or 2 slip in terms of that overall plan. So from the investors' perspective, they'll just see improvement, but not enough for what we would want internally. But externally, it will walk up to -- we'll continue to walk up the margin chain. Operator: This concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Sam Rubin for his closing remarks. Sam Rubin: Thank you. So before I leave, I'll just frame it one more time to give the complete picture. LightPath is really no longer a component supplier it used to be. We're a vertically integrated systems company, a record backlog, well-capitalized balance sheet and a technology position that's aligned with the most pressing supply chain mandates of the defense industrial base. The NDAA deadline is real. Demand for germanium alternative in infrared systems is real. At this point, so is our ability to deliver. From here, our job over the next several quarters is simple to describe execution to execute, ship on time, move backlog into profit and loss into the P&L and let margins expand as volumes built. With that, I'll conclude, and I'll thank everybody for their time today and look forward to speaking to you again next time. Operator: This concludes today's program. Thank you for your participation, and you may disconnect at any time.
Operator: Good day, and thank you for standing by. Welcome to the AMN Healthcare First Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Randy Reece, Vice President, Investor Relations and Strategy. Please go ahead. Randle Reece: Good afternoon, everyone. Welcome to AMN Healthcare's First Quarter 2026 Earnings Call. A replay of this webcast will be available at ir.amnhealthcare.com at the conclusion of this call. Remarks we make during this call about future expectations, projections, trends, plans, events or circumstances constitute forward-looking statements. These statements reflect the company's current beliefs based upon information currently available to it. Our actual results may differ materially from those indicated by these forward-looking statements because of various factors and cautionary statements, including those identified in our most recently filed Form 10-K and 10-Q, our earnings release and subsequent filings with the SEC. The company does not intend to update guidance or any forward-looking statements provided today prior to its next earnings release. This call contains certain non-GAAP financial information. Information regarding and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release and on our financial reports page at ir.amnhealthcare.com. On the call with me today are Cary Grace, President and Chief Executive Officer; and Brian Scott, Chief Financial and Operating Officer. I will now turn the call over to Cary. Caroline Grace: Thank you, Randy, and good afternoon, everyone. We appreciate you joining us today. The AMN team made important achievements since the start of the year. The first quarter was defined by unusually large labor disruption activity. From an operational standpoint, it was a major milestone for AMN. We successfully supported several large events, 2 of which were long duration, while continuing to serve the day-to-day, showcasing our rapid scaling, disciplined execution, broad and deep clinician network and high-touch service delivery. This experience also validated the investments we've made over the past few years and our technology capabilities, including our event management system and AI recruitment. Technology that enables coordination, compliance and real-time execution at scale, and it highlighted the strength of our mission-driven team working across the company. The energy and endurance of the AMN team, balancing event-specific needs and driving business as usual, were all inspiring, demonstrating all the values and principles that make AMN special. For the first quarter, AMN delivered revenue of $1.38 billion, above our guidance range and consensus. Gross margin was 26.8%, well above our guidance range. Adjusted EBITDA was $166 million or 12.1% of revenue. The first quarter included $722 million in labor disruption revenue and $656 million in revenue from all other AMN businesses. Nurse and Allied Solutions recorded year-over-year growth in traveler volume, excluding labor disruption travelers for the first time since 2022. Our Nurse and Allied Staffing businesses performed better than we expected in the first quarter, and are on track for continued strong performance in the second quarter. Our international staffing business grew revenue by 17% quarter-over-quarter, [indiscernible] year-over-year. This was our first quarter of year-over-year growth in this business since the fourth quarter of 2023, shortly after the State Department implemented Visa retrogression. Our leadership search business also returned to year-over-year revenue growth. While the revenues from labor disruption events are hard to predict, our ability to move thousands of clinicians to meet the urgent needs of our strategic clients delivered great value on a scale we could not have done just a few years ago. Our solid performance in the quarter enabled us to pay down our revolver and increase our cash balance, improving our leverage ratio to 1.6x at quarter end. Our strong balance sheet positions us well in the industry to advance our growth strategy and drive value for our shareholders, clients and other stakeholders. While we view the labor disruption execution as a defining accomplishment, we remain focused on the underlying drivers that enable our long-term growth plan, broader and deeper client and clinician relationships, scaled service execution and technology enablement of our solutions. In our Solutions segment, first quarter revenue for Nurse and Allied Solutions was $1.13 billion, our second highest revenue for the segment in company history. Beyond the labor disruption revenue and international nurse growth, travel nurse revenue grew 13% year-over-year and allied was up 3%. Bill rates and hours also moved favorably, with average bill rate up 6% year-over-year due to a surge in rapid response placements. Nurse demand has been muted, though demand in recent weeks improved to be flat year-over-year. Allied demand has been growing year-over-year since 2025. Our teams are executing very well at filling the available demand. For the second quarter, we expect Nurse and Allied Solutions revenue to be flat to down 2% year-over-year, including a normalization of the segment bill rate. First quarter revenue for Physician and Leadership Solutions was $164 million, lower by 6% year-over-year. Locum tenens volume was down 9% year-over-year, and revenue per day filled was up 3%. Interim leadership volume was down, partially offset by an increase in pricing. Our search business was highlighted by strong growth in physician permanent placement and new executive searches. We continue to see locums clients focused on managing spend by centralizing program management and hiring permanent physicians. And we have both a healthy pipeline of local MSP prospects as well as a new locum MSP client in the quarter. We also renewed and expanded the contract with our largest locums clients. MSP volume was up year-over-year, and we are driving towards making MSP a higher percentage of our revenue mix. Overall, locums demand has been softer, with more demand in the third-party channel, which is more competitive and harder to fill. Our lower fill rates in that channel more than offset our MSP progress. Similar to what we did in our nurse business to improve performance in vendor-neutral programs, we have initiatives in place to tech enable and automate our locums recruiting process to increase speed as well as adding more recruiters to enable higher fill rates. Leadership Solutions has rolled out refreshed go-to-market approaches for executive and leadership search and interim to align with clients' current challenges, including accelerating health care C-suite turnover, rising demand for digitally fluid, data-driven leaders and developing sustainable workforce strategies. Operationally, the team is improving fill rates with AI-enabled candidate matching and enhanced tech and data capabilities to support our search consultants. In the second quarter, we expect Physician and Leadership Solutions revenue to be down approximately 6% to 8% year-over-year. [ Quarter ] revenue in Technology and Workforce Solutions was $87 million, down 15% year-over-year or 10%, excluding the business we divested last year. Language services continued the rollout of our tiered service and pricing strategy, and we are pleased with our progress, including increased new sales wins and gross margin improvement in the first quarter. Our updated model enables us to serve our clients with the broadest set of language access services while delivering superior clients and patient experience and outcomes. On our WorkWise workforce technology platform, we rolled out new AI-driven tools designed to help our customers fill roles faster and improve the quality of candidate matches. We added automated candidate scoring, improved search across open orders and available staff and made it easier to create clear job descriptions, improving speed and overall hiring efficiency. We already used our AI recruiter to deploy more than 10,000 clinicians in the first quarter. We also introduced supplier performance analytics, which gives clients more transparency into supplier quality, responsiveness and outcomes. Overall, these updates further differentiate WorkWise and reinforce our ability to help health care organizations make better workforce decisions and manage staffing more efficiently. Our technology enablement has also strengthened our engagement with health care professionals. Our market-leading clinician app, AMN Passport, plays a critical role in how we improve the connection between client needs and the labor force. Over the past year, we increased the features in utility of Passport. And as a result, Passport users are up more than 30% year-over-year, with monthly active users up more than 50%. Based on positive client reception, we are accelerating our go-to-market strategy for WorkWise beyond our current client base, and we expect this acceleration to support new sales heading into the second half of the year. For the second quarter, we expect Technology and Workforce Solutions revenue to be down approximately 14% to 16% year-over-year, which implies an improved sequential trend compared with the past 2 quarters. Overall, we are encouraged by our start to the year, with some key solutions returning to year-over-year growth and plans for additional solutions to return to year-over-year growth this year and into next year. We remain confident that we are moving toward a business model in which we can sustain long-term revenue growth and grow adjusted EBITDA at twice the rate of revenue growth. Our first quarter performance was a significant demonstration of AMN's capability to scale quickly and deliver at a high level, integrating technology, operational execution and a mission-driven team under intense conditions. Great people are at the center of our mission and our culture. As we celebrate National Nurses Week this week, we are grateful to and for the tens of thousands of nurses we have the privilege of working with, who enable continuous, high-quality patient care delivered across a wide range of care settings and locations. With that, I'll turn the call over to Brian to walk through the financial details and outlook consideration. Brian Scott: Thank you, Cary, and good afternoon, everyone. First quarter consolidated revenue was $1.38 billion, significantly above the high end of our guidance range, driven in large part by labor disruption revenue, exceeding our guidance by $122 million. We also had better-than-expected performance from our travel nurse, allied and international businesses. Consolidated gross margin for the quarter was 26.8%, above the high end of guidance. Year-over-year gross margin declined 190 basis points and sequentially, was up 70 basis points. First quarter consolidated SG&A expenses were $218 million. Adjusted SG&A, excluding certain items, was $205 million, up compared to the prior year and prior quarter, driven by over $70 million in costs related to the large labor disruption event. First quarter Nurse and Allied revenue was $1.1 billion, up 173% year-over-year, up 130% sequentially. Excluding $722 million in labor disruption revenue, Nurse and Allied revenue was $405 million, up 8% year-over-year and up 11% sequentially. Nurse revenue, excluding labor disruption, was $254 million, up 12% year-over-year and 16% sequentially. The growth was driven in part by strong rapid response volume and associated higher bill rates, along with the international business recovery. Allied revenue was $151 million, up 3% both year-over-year and sequentially. Year-over-year segment volume increased 3%, average bill rate increased 6% and average hours worked increased 1%. Sequentially, volume and average bill rate increased 6% and average hours worked increased 2%. The higher bill rate was driven mostly by the rapid response revenue that is not expected to recur in the second quarter. Nurse and Allied gross margin in the quarter was 25.1%, up 240 basis points year-over-year and 350 basis points sequentially as labor disruption and rapid response revenue had a favorable impact on the segment margin. Moving to Physician and Leadership Solutions, first quarter revenue was $164 million, down 6% year-over-year and 3% sequentially. Locum tenens revenue was $131 million, down 7% year-over-year and 4% sequentially. Interim leadership revenue was $23 million, down 4% year-over-year and 5% sequentially, while search revenue of $10 million was up 4% both year-over-year and sequentially. Segment gross margin for the first quarter was 26.1%, down 120 basis points year-over-year and 140 basis points sequentially. The decrease in gross margin is primarily due to a lower margin in locums and a drag of 110 basis points from increased sales reserves booked in the quarter. In Technology and Workforce Solutions, first quarter revenue was $87 million, down 15% year-over-year and 1% sequentially. Excluding the July 2025 sale of Smart Square, revenue was down 10% year-over-year, driven mainly by a decrease in pricing and billed minutes in language services. First quarter language services revenue was $69 million, down 8% year-over-year and 1% sequentially. VMS revenue was $16 million, down 18% year-over-year and 2% sequentially. Segment gross margin was 50%, down 550 basis points year-over-year, driven by pricing pressure in language services and an unfavorable business mix. Sequentially, gross margin increased by 190 basis points, which included a 200 basis point improvement in the language services margin, reflecting the service model changes Cary mentioned in her opening comments. First quarter net income was $62 million. This compared with a net loss of $1 million in the prior year period and a net loss of $8 million in the prior quarter. First quarter consolidated adjusted EBITDA was $166 million. Adjusted EBITDA margin for the quarter was 12.1%, above the high end of guidance and up 280 basis points from the prior year period and 480 basis points sequentially. Day sales outstanding for the quarter was 26 days. Excluding working capital effects from the large labor disruption event, DSO was 54 days, 4 days lower year-over-year and 2 days lower sequentially. Operating cash flow for the quarter was $562 million and capital expenditures were $7 million. At quarter end, we had $551 million in cash and equivalents, with a large portion of this cash increase from excess client deposits were the labor disruption events. We ended the first quarter with $367 million in client deposits, of which we have already refunded approximately $250 million this quarter. Assuming the remainder of the deposits are repaid this quarter, we would anticipate having approximately $175 million in cash at quarter end. We ended the first quarter with total debt of $750 million and our leverage ratio, as calculated for our credit agreement, was 1.6x. Moving to the second quarter outlook. We expect consolidated revenue in the range of $620 million to $635 million. Gross margin is expected to be 28% to 28.5%. Reported SG&A is projected to be approximately 23% to 23.5% of revenue, reflecting continued cost discipline, while supporting growth initiatives. Operating margin is expected to be minus 0.6% to plus 0.1%. And adjusted EBITDA margin is expected to be 6.7% to 7.2%. Additional guidance details are provided in our earnings release. To echo Cary's comments, we remain confident that we have the team and strategy to deliver leading tech-enabled solutions that will drive sustainable revenue growth with improved operating leverage. With that, operator, please open up the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Trevor Romeo of William Blair. Unknown Analyst: This is [ Melissa ] on for Trevor. I guess just to start out, what are conversations with the major hospital operators sounding like on contract labor today? Noticed that it's not being called out on the earnings calls anymore. So are you seeing any fill rate normalization going on outside of those crisis and strike type situation? I know you mentioned seeing it in some pockets last quarter. Caroline Grace: Yes. Thanks, Melissa. Overall, we are seeing clients continue to focus on cost management as well as ensuring that they have the workforce in place to be able to support increasing levels of patient utilization. So those 2 themes have continued. To your point, the conversation has shifted with clients where getting to more normalized, both utilization levels and bill rate levels of contract labor was a lever, a big lever coming out of the pandemic. That really has normalized, and we've seen stability for a couple of quarters now. The conversations with clients have really shifted back to what are the levers that we can use to more sustainably create a high-quality cost-effective workforce and gets into a more of a total talent type of solution platform, which we are well positioned against, and its conversations around how do I do more predictive analytics about what my needs are? How do I ensure that I am leveraging the talent that I have most effectively? How am I tech-enabling some of my solutions to be able to close some of the gap between increasing levels of patient utilization and staffing? So we have seen those conversations really shift back to what are the more sustainable total talent strategies that you're going to be able to utilize to support your patient growth volume. Unknown Analyst: Great. And then maybe if I could just squeeze one more follow-up. On the labor disruption revenue, is there any additional color you guys could give on the client relationships that you guys developed coming out of that large windfall? And just any additional revenue opportunities that came from that this quarter? Caroline Grace: Yes. So we supported in the quarter, 5 labor disruption events, 3 of them were large, 2 of the 3 were indefinite. That was historic for us, that was historic for the industry. And when you go through those types of crisis events with clients, your relationships get deeper and stronger. It was an incredibly important moment for the clients that we were supporting in those events. And so we were able to do that successfully, help ensure that they were able to go through and deliver continuous high-quality care for their patients. And that is a very important service, not only what we did in the first quarter that took years of planning to get there, but what we would expect to do in future years with clients going through those events. Operator: Our next question comes from the line of Jeffrey Silber of BMO Capital Markets. Jeffrey Silber: In your prepared remarks, you alluded a few times to your rapid response revenues this quarter. Can you just remind us what the difference between that and your typical labor disruption revenues are and the impact on margins, et cetera? Brian Scott: Yes. Jeff, typically, they are shorter duration assignments, where the client is also looking for us to get somebody deployed very quickly. So that -- in this case, there was some kind of carryover between the -- or crossover between the labor disruption events and these rapid response orders. And so the rates are typically higher, but it's also -- it comes to that as a much higher pay rate as well. So I wouldn't think of it as much as a significant margin answer, but it does have an impact on the volume and higher revenue. So we mentioned the bill rate being much higher in the first quarter. That was in part because of the mix of those rapid response orders that we had in the quarter. The underlying trend around bill rates hasn't changed a whole lot in the last several quarters, but it was elevated. And that's why we made a point of calling it out as we look at the second quarter, we expect the rates to normalize. But it was -- it's very valuable for clients because, again, they need -- they have that rapid need and we're able to deliver really high fill rates on those orders. Caroline Grace: Jeff, one of the things that happens when you're in a longer-duration crisis, like 2 of the labor disruption events that we supported is, you can layer in rapid response. It's still an immediate need, but it is more cost-effective for the client. So it was part of a strategy that we were utilizing with clients to be able to really minimize the cost of them being able to support a long-duration crisis. Jeffrey Silber: Okay. That's really helpful. Second, my follow-up question is just regarding the competitive landscape. You obviously saw one of your larger competitors looks like they're going private again. I'm just curious what you're seeing from those dynamics. Have you seen some of the smaller players leave, and are the larger players consolidating? I'm just wondering your thoughts on that. Caroline Grace: Let me start and then I know Brian has touched on this as well. We've talked for some period of time that we expected there to be consolidation in the industry for a whole host of reasons. Coming out of the pandemic, you had too much supply of competitors. And as you continue to see the tech enablement of these services playing a bigger role, that tends to have a bias towards more scale players. You've seen some of that consolidation pick up more recently. Obviously, there's announcement yesterday about one competitor, but you've seen some merging in some places, both of more traditional staffing companies, but also of some of the more tech-enabled types of solutions. You've seen over the past year, some workforce forms that had gotten into nursing, get out of nursing. So you're seeing it play out in a couple of different ways. But we would expect for that consolidation to continue. Brian Scott: Yes, absolutely. I think that's -- you said is taking a little longer, and we know that there's still some of our competitors that have -- are dealing with larger amounts of leverage, and they're working through that. And so I think that will tend to ultimately drive more consolidation as well. And then some of the platform players, again, as they've consolidated, I think it's a reflection of many clients really looking for partners to help them more effectively manage their labor force and be thoughtful about the right mix and fulfillment. And so if you're purely just a platform player, you may be able to just deliver on some fill, but you're not really bringing incremental value to the clients because they're trying to really manage their costs in the most effective way. So we think that's an important part of our strategy. It's really being a thought partner with our customers to help them optimize their utilization of perm, contingent, how do we help them on both of those fronts. And I think that's -- more and more of those are the conversations and where we can really be a bigger partner for our customers. Operator: Our next question comes from the line of A.J. Rice of UBS. Albert Rice: Maybe first, just to ask, you've had a lot of moving parts, the labor disruption, your comments about rapid response. When you look at the underlying market dynamics, do you have an updated view on whether you think the key areas, nursing, allied locum tenens, what is the year-to-year trend there? Is it growing? What would you say the -- when you normalize, what do you think the underlying market looks like these days? Caroline Grace: So let me give you some comments about what we're seeing in demand, and Brian can kind of layer in. We gave a lot of numbers taking out labor disruption very intensely so you could get a good sense of where we are in the businesses without those events coming through. We feel good about how we started the year overall. Nurse and Allied, you are seeing healthy demand in Allied, you're seeing particularly the past couple of weeks, an uptick in demand in nurse. So we're about flat year-over-year with where we were this time last year, Allied turned to year-over-year demand growth in 2025 and has continued. And so we see into Q2, continued strong especially fill performance across Nurse and Allied. If we look at PLS, in locums, I made some comments in my beginning statement where we've seen weaker demand as we started off the year. We've seen a bit of an uptick over the past couple of weeks. But a lot of that demand structurally is in the third-party channel, where it's typically the most competitive when we have harder fill rates. We have a number of initiatives and a lot of successful proof points with what we did in that space in Nurse and Allied, and we have that underway in locum. So as we go through the year, we feel better about our capabilities in locums to be able to compete in that space and would expect to get to year-over-year growth in the first part of 2027. Search is already there, and we expect it to stay there in year-over-year growth. And then if we go into the TWS segment, we talked about, both Brian and I, what we're seeing already from the service model rollout that we've talked about the past 2 quarters. We feel very good about how that's being operationalized in the outcomes. And we expect that, that service model improvements to continue throughout the course of this year. And for VMS, we would expect us to continue to onboard new client wins as we go through the year and get to year-over-year growth in 2027. Albert Rice: I appreciate that. Go ahead. Brian Scott: I was going to add, A.J., just as Cary said, we're -- the Allied team has done a really fantastic job both in our traditional disciplined with therapy, imaging, lab, and respiratory, all of them are up. And then our schools business continues to have really strong momentum, as we talked about in the last couple of quarters. And so both demand and fulfillment team is performing really well. And as Cary mentioned, international is back to the growth as well. But on the -- so if you look at the Nurse and Allied segment, in total, excluding labor disruption, we're back to -- the guide would presume kind of flat to slightly up, and that's where we see the potential to continue to have a positive year-over-year comp going forward here, driven more right now by international allies, including the schools business. The travel nurse business is right on the cusp of getting back to a positive year-over-year growth on a consistent basis. So feel really good about the momentum in that segment. Albert Rice: No, I appreciate all that. I guess I was also just sort of trying to get a sense, I know you're doing a lot of things to get back on a solid growth trajectory. I just was wondering, is the underlying market in some of those key segments help? Or is it still sort of trudging along? I was thinking more in terms of the overall market from what you see. I may ask, if there's anything on that, fine. But I was -- you made the comment again about the revenue. You're moving toward a model where revenues -- well, adjusted EBITDA grows twice as fast as revenues. I wondered if you could flesh that out a little bit? Is that business efficiencies you're working on? Is that just operating leverage as the market starts to rebound? What are some of the pieces that would allow you to have adjusted EBITDA growth consistently 2x revenue growth? Brian Scott: Yes. Thanks, A.J. And I think we talked about that a few months ago, and that's really meant to be kind of our longer-term growth algorithm. And as we kind of lay that out, there was a working assumption that we'd have the businesses all are predominantly back into a growth mode. And so as Cary kind of walked through some of the service lines and where we are, we have confidence as we move into 2027, we have good opportunity to get back to a growth model across our service lines. That's really where you start to see that kick in. So it's partly a function of -- with top line growth more -- we laid out more in the 4% to 6% range. That would be -- that would occur at some point later in 2027 as we get all the businesses growing. When that happens in conjunction with a lot of the operational changes we continue to make to be a more efficient model, as process changes, automation, more deployment of AI, we think can drive a more efficient model. And we've got to be able to leverage our platform already. So I think the combination of continued process improvements and technology improvements, along with getting the top line business growing consistently, that would absolutely give us the opportunity to get that double-digit EBITDA growth. Caroline Grace: And A.J., the other things that we'd want to see in terms of just things we track beyond the demand comments that I made is we continue to see stabilization in bill rates in nurse. You've seen some modest increases in allied and in locum. We want to see as we leave this year, increases in those bill rates. We're seeing that with some clients as they want to get orders billed, but you want to see that more sustainably to mirror what you would expect to be some increases in the labor market. We saw some modest uptick in average hours worked. That would also be something that as we leave this year, that would be something else that would be very constructive overall of the industry turning from stabilization to more sustained growth. Operator: Our next question comes from the line of Tobey Sommer of Truist. Tyler Barishaw: This is Tyler Barishaw on for Tobey. On your net leverage, you took that down to 1.6x. How should we think about it over the remainder of the year? Brian Scott: Yes. Thanks, Tyler. So the intra dynamic, as we talked about in the prepared remarks with the cash balance. Our credit agreement actually as a governor on the amount of cash we can apply towards our net debt. So that's where we get that the 1.6x. But as you -- as I mentioned, as we work through a refunding of a fair amount of that cash balance during the second quarter, that would basically end up with a pretty similar leverage ratio at the end of Q2 based on our guidance. And right now, if you just -- if you roll out to the rest of the year, we'd expect to have a leverage ratio that would be at 2x or less through the remainder of this year. So we feel really positive about our position on the balance sheet. We paid off our revolver. We've extended the maturities of our existing debt out to 2029 and 2031. And so this, we think, puts us in a really strong position on the balance sheet to really focus exclusively on how we grow in the business here, and that's investing in our teams and our operations, accelerating some of the capital investments that we have already laid out to grow the business as well and gives us a lot more flexibility to consider different capital allocation options as we go through this year and into '27. Tyler Barishaw: Got it. And you mentioned Nurse and Allied had volume growth for the first time ex strike since 2022. Can you maybe talk about that, how that's looking for the rest of the year? Do you think that trend can sustain? Brian Scott: Yes. For the segment overall, we absolutely see the ability for us to maintain positive year-over-year growth in our volume. Again, I kind of laid out -- and really, all the teams are executing really well. Cary mentioned, our -- the demand environment in nursing has been stable but a bit muted. I think we expect to see that pick up, and we continue to look for ways to expand our client relationships and bring in new clients, both our strategic MSP and VMS but also more direct relationships. So that will open up more demand opportunity. But the teams are doing a fantastic job of filling into the demand that we have across our nurse, allied and international businesses. So I think that's where we have confidence we can continue to grow volume as we go through this year. Operator: Our next question comes from the line of Jack Slevin of Jefferies. Unknown Analyst: This is [ Brett ] on for Jack Slevin. I was wondering if you could provide a little bit of additional color here to help us bridge the second quarter gross margin guide? Brian Scott: So the bridging from Q1 to Q2? Unknown Analyst: Correct. Brian Scott: Yes. There's -- yes, so there are a couple of moving pieces, as you can imagine, with -- particularly with the large amount of labor disruption revenue in the first quarter. So that the 26.8% that we reported, as I mentioned in the prepared remarks, we did have some drag from the -- some sales adjustments that predominantly hit our Physician and Leadership segment. So what I'd say is if you really try to kind of strip out some of the different kind of onetime items you'd look at a gross margin in the first quarter, a little over 27% or 27.3%, 27.4% range. The guidance we've given for Q2, the midpoint is 28.2%. As we talked about that, there's about 10 million of labor disruption revenue embedded in that guidance. Part of that is actual contractual activities that we've got. There's also a part, as we reconciled some prior year events and finalize those invoices, there was some benefit from that, which is a kind of flow straight through. So that gross margin is a bit elevated in our guide for the second quarter. You should think about it still being a little bit more in the 27.5% range for Q2. I think it's important as you think about that even as you're looking at our expectations through the remainder of the year. That's really the right way to think about the launching point for the third and fourth quarter as well. Unknown Analyst: Great. That's helpful. And then maybe for my follow-up, just with the update to Visa retrogressions, how should we be thinking about the progression for the international business this year and then as we move into next year? Caroline Grace: Yes. So overall, consistent with what we talked about last quarter, we would expect high teen year-over-year growth in international this year. We had improvement in the retrogression dates over the past quarter. But what you're really seeing now is those candidates going into the next phase of the approval process, which is sitting at the embassies. We haven't assumed any significant acceleration of those candidates through the embassy process. We'll know more over the coming, I'd say, kind of quarter plus, how that's going. But if that goes faster than what we're anticipating, that you would see maybe some lift at the very end of this year that would help support some low double-digit growth into next year. We are not assuming at this point that you're going to see any lift of any of the travel bans or the travel suspension that would also be a tailwind to our assumptions and would predominantly affect and be accretive to 2027 growth. Operator: Our next question comes from the line of Kevin Fischbeck of Bank of America. Kevin Fischbeck: Great. Maybe to ask a question -- it was asked earlier, maybe a little bit differently. Do you guys have insight into like what percentage of your clients are back down to temp staffing as a percentage of their total workforce today like relative to where they were in 2019? And how many are still kind of at elevated levels versus that level? Caroline Grace: Yes. We don't have total insight. Obviously, for companies that are more public about their results, we have some insights. And I think the piece that we always focus on is what is the percentage because obviously, the underlying cost of labor, whether it's contingent or permanent, has gone up. Since 2019, I would say overall, when we compare our current client base to clients that we see -- or I should say, prospects that we see in our pipeline, we see more of our nonclients who may still have a little bit of work to do to get the utilization levels down. We were very partnering with our clients post the pandemic to get them down to more sustainable utilization levels. So I would say, generally, across our client base, they're more focused and shifting towards how do I build and retain my workforce as opposed to how am I reducing that? Brian Scott: Yes. And I think there's also -- I think there's more and more recognition of this inflection. We've seen where the aggressive permanent hiring that was done post pandemic has also led to significant wage increases for permanent labor. And so they're -- and you look at the reset that's occurred in bill rates for contract labor. And you're certainly at this point where we talked before the differential is -- can be very small. Sometimes there's no differential. And so as clients think about fluctuating patient volumes, managing their total workforce cost, I think that's -- we're shifting more to that dialogue versus just purely focusing on the contract labor volume. It's more what is the total cost of their labor and what is the value of having flexibility. And so I think that's where we're seeing more dialogue and less focus on that reduction at this point. Kevin Fischbeck: Okay. And then you mentioned language services margin is up a couple hundred basis points year-over-year. I guess, can you talk a little bit more about what drove that? And I guess, where generally pricing is going? Has pricing stabilized for that business? Caroline Grace: Yes. Let me do a high level, and then I'm going to turn it over to Nishan to add some color. So we have been operationalizing a new service model that we talked about the past couple of quarters that really has 3 enhancements to it. One is an increased offshore mix of resources, right? We always have an onshore/offshore mix. It's them utilizing their devices as opposed to us providing it, and more accommodating SLA. So kind of longer speed to answer in some cases. So we have been rolling that out since the end of last year, and I would attribute that to most of what you've seen on the margin piece. But Nishan, maybe talk a little about the competitive environment and pricing. Unknown Executive: Yes. It's a great question, Kevin. Competitive environment continues to be there, although we did see it maybe coming down a little bit through this year. But we expect staying through the balance of this year, but it is starting to stabilize a bit more. So feeling much more positive about our competitive position and posture in that market. Brian Scott: And I just want to point out that the 200 basis points was sequential. So we're still down -- we're down year-over-year, but we've seen that decline we saw throughout 2025. And so with the model changes, this is the first quarter we've seen it start to inflect back up again. So even though we're seeing pricing come down the way -- the changes we made in our cost structure for how we're delivering our services, which, again, focus is still always on the highest quality in the industry, but we've been able to do it in a way we're going to be able to bring down our cost for the delivery that's helping us improve that margin. Kevin Fischbeck: I guess maybe is this the bottom then? Do you think this is -- do you think you can keep going up from here? Is this the right way to think about it? Has those 2 things cause better pricing pressure still there -- offset? Caroline Grace: I think there's going to be a cycle that you have to work through for some of these pricings as maybe some contracts come up. I think there's still going to be a tail of that, that we've already factored into this. And so -- but we do believe that, to Nishan's comment, the -- it's a much more stable environment than we had seen in the past. We're also seeing and expect minutes quarter-over-quarter to be flat. So there's more stability that we're seeing than we had seen in the past, but we think it's going to be competitive. And we think there's going to continue to be competition for the business and particularly consolidation. We've been very focused on not just getting new clients, but consolidating spend with some of our larger clients. The other piece that I'll mention, I know we talked about this on the last call as well, is one of our areas of focus in our service model is how do we support the end-to-end patient experience. So while there is a moat around the clinical experience that there has to be a human involved in that interpretation. There is an opportunity for us from an admission standpoint, a discharge standpoint to use more AI-enabled capabilities that we are working on. Operator: Our next question comes from the line of Mark Marcon of Baird. Mark Marcon: You mentioned some changing dynamics with the client that are less focused on reducing their contract labor. I was wondering if you could talk about any sort of impact that, that could potentially have with regards to their willingness to see increased bill rates and to raise them to levels where we could actually -- they're more compelling to the nurses and we can have bigger fill rates? Caroline Grace: I think we continue to see overall focus on cost management. So where we're seeing clients increase bill rates is when physicians are not getting filled. And so I think that dynamic is going to be the dynamic that is going to really be the tailwind behind bill rates increasing. When you have positions that are priced appropriately, you see them filled. So that dynamic, I think, will continue. And as clients need more of these positions, with a higher degree of urgency, you will see more of those fill rates increase. But I would expect that to happen for time, and it will really be probably market by market and client by client. Mark Marcon: Great. And then with regards to just the cost consciousness, are you seeing any sort of attitudinal change at all with regards to the pressures that they were feeling when we were going through the early stages of DOGE? Is that starting to lift at all? Is that going to have any impact with regards to leadership within PLD? And how we should think about that portion of the business? Caroline Grace: What I would say overall is while we saw this time last year much more of a pause to step back and assess, okay, what are the implications of Big Beautiful Bill? What we're seeing now is much -- is really a focus on just how do we support what is expected to be an increase in patient utilization just from an aging population demographic. And do that when we know there is going to be, at some point, a limited amount of clinicians. And so how do we start having those strategies and do that in a way that is cost effective because our costs are going up higher than what we are getting reimbursed for. So I'd say that is still the general theme that we are hearing. And what we are feeling is still a focus on those cost-spending strategies for the workforce, including how do we ensure on the physician side that we are fully staffed so that we can maximize revenue. Brian Scott: And to your other question on the leadership side, we did talk about that in the prepared remarks that as we talk about the aging clinical population, in fact, you're also seeing an aging leadership population within health care and the changing of the skill sets needed to navigate this environment. And so we are -- as we drive our go-to-market strategy and the way we're interacting with clients and bringing value, I think it's -- there's a lot of opportunity for us to help them find the right talent for where they are in that journey. And so I think we're feeling good about our position in that market to grow our leadership, both the interim and our search businesses, to address some of the talent -- kind of depending talent gaps we think are going to occur as well as some of the new skills that are needed to help our clients navigate this world as well. Operator: I am showing no further questions at this time. So I would like to turn it back to Cary Grace for closing remarks. Caroline Grace: Thank you all for your interest in AMN, and a very special thank you to our extraordinary team and the strong partnerships that we have with our clients, clinicians and suppliers, who collectively helped us get off to a very strong start to the year. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and welcome to the Cherry Hill Mortgage Investment Corporation's First Quarter 2026 Conference Call. [Operator Instructions] Please note, this call is being recorded. I'd now like to turn the call over to Garrett Edson, Investor Relations. Please go ahead. Garrett Edson: We'd like to thank you for joining us today for Cherry Hill Mortgage Investment Corporation's First Quarter 2026 Conference Call. In advance of this call, we issued a press release that was distributed earlier this afternoon. That press release and our first quarter 2026 investor presentation have been posted to the Investor Relations section of our website at www.chmireit.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ from those discussed today. Examples of forward-looking statements include those related to interest income, financial guidance, IRRs, future expected cash flows as well as prepayment and recapture rates, delinquencies and non-GAAP financial measures such as earnings available for distribution or EAD and comprehensive income. Forward-looking statements represent management's current estimates, and Cherry Hill assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements contained in the company's filings with the SEC and the definitions contained in the financial presentations available on the company's website. Today's conference call is hosted by Jay Lown, President and CEO; Julian Evans, the Chief Investment Officer; and Apeksha Patel, the Chief Financial Officer. Now I will turn the call over to Jay. Jeffrey Lown: Thanks, Garrett, and welcome to our first quarter 2026 earnings call. The impact to markets from geopolitical events globally drove performance for the first quarter of this year. On our prior call in late February, the environment felt very much like the second half of 2025 in terms of relative stability. A few days later, we were at war with Iran, oil and gas prices spiked, inflation expectations followed in concert, and the potential for future rate cuts this year quickly fell by the wayside. Mortgage spreads promptly widened and the yield curve flattened as a result of the increased volatility. Specific to Cherry Hill, as the geopolitical uncertainty unfolded, we acted quickly and we believe appropriately to protect the company by focusing on the risks that were within our control. We managed our interest rate exposure in March well, which we believe helped mitigate the impact to book value at the end of March. All things considered, we believe we performed well in the quarter on a relative basis. Subsequent to quarter end, markets have responded favorably to a potential end to the conflict, and that has been a positive catalyst for agency-focused REITs, as noted by peers. That said, we are monitoring everything closely as markets will likely remain turbulent until the geopolitical situation has fully settled. For the first quarter, we generated GAAP net loss applicable to common stockholders of $0.05 per diluted share. Book value per common share finished the quarter at $3.23 compared to $3.44 on December 31, down 6.1% for the quarter. Economic return for the quarter was negative 3.2%. On an NAV basis, which includes preferred stock, NAV was down $7.9 million or 3.3% relative to December 31. Financial leverage at the end of the quarter remained relatively consistent at 5.5x as we continue to stay prudently levered. We ended the quarter with $47 million of unrestricted cash on the balance sheet, maintaining a solid liquidity profile. In addition, our strategic partnership and investment with Real Genius, a Florida-based digital mortgage technology company, continues to progress in line with our expectations. As we move through the year, we expect the market will remain volatile for at least the near term until there is stability in the Middle East. We remain focused on proactively managing our portfolio through this challenging period while continuing to seek out additional investment opportunities we believe would be accretive to our business. With that, I'll turn the call over to Julian, who will cover more details regarding our investment portfolio and its performance for the first quarter. Julian Evans: Thank you, Jay. First quarter portfolio performance was driven by GSE policy signaling, mortgage spread volatility and changing central bank rate expectations, which were amplified by geopolitical risk late in the quarter. January performance was strong due to a sharp but temporary mortgage spread tightening, while February and March saw the reversal of mortgage spreads driven by elevated volatility, higher interest rates and yield curve flattening that more than offset the January gains. Also having a negative impact on the portfolio performance was tighter SOFR spreads. Escalating volatility and weaker investor sentiment put SOFR spreads continuously tighter throughout the quarter. During the quarter, we maintained our portfolio positioning for the most part. But as the spread and rate environment changed in March, we took steps to protect book value in the rising rate environment. To that end, while increased volatility impacted our portfolio, along with most of the industry, we were partially aided by an improved valuation of our MSR portfolio, which speaks to the resilience of the construction of our overall portfolio in a challenging environment. At quarter end, our MSR portfolio had a UPB of $15.6 billion and a market value of approximately $213 million. The MSR and related net assets represented approximately 41% of our equity capital and approximately 21% of our investable assets, excluding cash at quarter end. Meanwhile, our RMBS portfolio accounted for approximately 42% of our equity capital. As a percentage of investable assets, the RMBS portfolio represented approximately 79%, excluding cash at quarter end. Our MSR portfolio's net CPR averaged approximately 4.5% for the first quarter, down modestly from the previous quarter. The portfolio's recapture rate remains de minimis as the incentive to refinance continues to be minimal for this portfolio given the portfolio's loan rate. We continue to expect a low recapture rate and a relatively low net CPR in the near term given our MSR portfolio's characteristics. The RMBS portfolio's prepayment speeds declined modestly to 8% CPR for the 3-month period ending March compared to 8.5% for the prior quarter. Despite first quarter interest rate fluctuations, mortgage rates averaged 6.1% for the 3-month period, which was lower than the previous 3-month average. Homeowners moved quickly to take advantage of the lower mortgage rates. That refinancing opportunity quickly vanished at the initiation of the Iran war and mortgage rates settled near 6.4% to end the quarter. At this level of mortgage rates, mortgage supply should be reduced, improving mortgage technicals. That, coupled with consistent demand from the GSEs should support mortgage spreads. Offsetting the potential improvement in mortgage spreads is volatility driven by geopolitical risk. Mortgages like certainty and clarity and should improve as the Iran war is resolved. At current rate levels, the mortgage universe is approximately 14% refinanceable. Prior to the start of the war, we were monitoring a mortgage rate of 5.5%. At a 5.5% mortgage rate, the refinanceable universe would have averaged approximately 30%. As of March 31, the RMBS portfolio inclusive of TBAs stood at approximately $807 million, in line with the previous quarter end as we maintained our mortgage portfolio positioned towards the middle of the coupon stack and higher. For the first quarter, our RMBS net interest spread was 2.9%, which was higher than the previous quarter. The improvement in NIM was mainly driven by a reduction in interest expenses related to repo costs. Our RMBS financing rate declined to 3.78% from 3.99% at quarter end. The NIM improvement was also aided by improved dollar roll income. Overall, our hedge strategy remains intact, and we will continue to use a combination of swaps, TBA securities, treasury futures and Eris SOFR futures to hedge the portfolio. Moving forward, we will continue to proactively manage our portfolio and adjust our overall capital structure to add value for shareholders while closely monitoring the macro environment given our expectation for volatility to remain elevated in the near term with geopolitical tensions subside. I will now turn the call over to Apeksha for our first quarter financial discussion. Apeksha Patel: Thank you, Julian. GAAP net loss applicable to common stockholders for the first quarter was $2 million or $0.05 per weighted average diluted share outstanding during the quarter, while comprehensive loss attributable to common stockholders, which includes the mark-to-market of our available-for-sale RMBS, was $4.4 million or $0.12 per weighted average diluted share. Our earnings available for distribution or EAD attributable to common stockholders were $5.3 million or $0.14 per share. Our book value per common share as of March 31, 2026, was $3.23 compared to book value of $3.44 as of December 31, 2025. We used a variety of derivative instruments to mitigate the effects of increases in interest rates on a portion of our future repurchase borrowings. At the end of the first quarter, we held interest rate swaps, TBAs, treasury futures and swap futures, all of which had a combined notional amount of approximately $396 million. You can see more details regarding our hedging strategy in our 10-Q as well as in our first quarter presentation. For GAAP purposes, we have not elected to apply hedge accounting for our interest rate derivatives. And as a result, we record the change in estimated fair value as a component of the net gain or loss on interest rate derivatives. Operating expenses were $3.3 million for the quarter. On March 12, 2026, our Board of Directors declared a dividend of $0.10 per common share for the first quarter of 2026, which was paid in cash on April 30, 2026. We also declared a dividend of $0.5125 per share on our 8.2% Series A Cumulative Redeemable Preferred Stock and a dividend of $0.5978 on our 8.25% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, both of which were paid on April 15, 2026. At this time, we will open up the call for questions. Operator? Operator: And our first question comes from Timothy D'Agostino with B. Riley Securities. Timothy D'Agostino: Congrats on the quarter. Earlier in the call, you mentioned examining additional investment opportunities. I guess, could you just provide some color on how you would go about funding those investment opportunities? Jeffrey Lown: Anything that we might do from an investment perspective would obviously come at the expense of a different asset class. So clearly, when we evaluate new opportunities, one of the things that we would think about and evaluate closely is the return profile on a risk-return weighted basis and how that might impact shareholder returns. So given the capital is constrained, that's how we would think about it. Timothy D'Agostino: Okay. Great. And then a second question for me. You noted the volatility in March and then the stabilization that we saw in April. As we think forward, could you just kind of walk us through your general thoughts on the return profile of the portfolio if stabilization persists through the second quarter or if we do see a spike in volatility again? Just kind of understanding from your perspective, that that return and how it might be impacted based off the general market. Julian Evans: Tim, it's Julian. Look, I think currently, mortgages from a spread and yield perspective are attractive here. I think a very simple return on a levered basis, about 15% to, let's say, mid-teens to high teens in terms of returns for RMBS. And I'd say probably on the MSR anywhere between 10% to maybe 12% on a levered basis. So I think any type of stability that we can get, we can obviously get some spread tightening that would impact the portfolio in a positive situation or just get rates to stabilize. I think if you look at kind of some of the scenarios that are in the presentation, it really shows that a parallel shift or a steepening, bull steepening type of scenario does add some positive returns to the portfolio. Timothy D'Agostino: Congrats on a great quarter. Julian Evans: Thanks, Tim. Operator: Our next question comes from Trevor Cranston with Citizens JMP. Trevor Cranston: You mentioned expecting some continued volatility in the near term. Can you talk a little bit about what kind of range you expect spreads to trade in kind of over the near future? And I guess, in widening scenarios, did you see any behavior in particular, I guess, from the GSEs or other investors that kind of give you added confidence in kind of where the ceiling is on where spreads could go, in widening events? Julian Evans: Well, I mean, currently, I think when we look at the mortgage spreads, and this is just versus swaps, I mean, we're currently -- I want to say, well, we can say where we ended the first quarter, call it, versus 7-year swaps, we ended around 165. We've kind of retraced ourselves into like 150 at this current point in time. You probably could go back towards 130 over. So if you think about a spread of 90 and swap spreads of 40 on that time frame, you get to 130. And then to the high side, I mean, we probably could visit the 180 again. So 140 on spread and 40 on the swap spreads. Any type of stabilization that we've noticed in terms of volatility, if the war has come to some type of resolution in terms of just being calm for a while, we've obviously seen spreads tighten. And obviously, any type of escalation, we've seen volatility pick up. I think vol remains elevated until we get clarity and some type of certainty that takes place over that time frame. I think we are going to be at these higher levels for a while until the resolution comes about. And what form that may take, I do not know the answer to that. Trevor Cranston: Got it. Okay. That's helpful. And do you guys have an update on where book value is today from the end of the quarter? Julian Evans: Oh, the infamous Mikhail question? Trevor Cranston: Yes, he told me to ask that. Julian Evans: No worries, go ahead. Apeksha Patel: Hey, Trevor, it's Apeksha. So our April 30 book value per share has increased nearly 2% from March 31, and that is excluding any second quarter dividend accrual as the Board hasn't met yet to approve it. But I would like to point out that post mid-April, spreads have softened. Operator: I'm showing no further questions at this time. I'd like to turn the call back over to Jay Lown for closing remarks. Jeffrey Lown: Thank you very much for joining us on our first quarter 2026 call. We look forward to updating you on our second quarter performance in August this year. Have a great evening. Operator: Thank you for your participation. You may now disconnect.
Operator: Good afternoon, and welcome to Silvaco's First Quarter Fiscal Year 2026 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Chris Zegarelli, Silvaco's CFO. Please proceed. Chris Zegarelli: Thank you. Joining me on the call today is Wally Rhines, Silvaco's CEO and Director. As a reminder, a press release highlighting the company's results, along with supplemental financial results, are available on the company's IR site at investors.silvaco.com. An archived replay of the call will be available on this website for a limited time after the call. Please note that during this call, management will be making remarks regarding future events and the future financial performance of the company. These remarks constitute forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. It is important to also note that the company undertakes no obligation to update such statements, except as required by law. The company cautions you to consider risk factors that could cause actual results to differ materially from those in the forward-looking statements contained in today's press release and on this conference call. The Risk Factors section in Silvaco's annual report on Form 10-K for the year ended 12/31/2025, provides descriptions of these risks. With that, I'd like to turn the call over to our CEO, Wally Rhines. Wally? Walden Rhines: Good afternoon. I appreciate you joining us today. I am very pleased with our results in Q1. Momentum continues to build on multiple fronts. Financially, we delivered solid Q1 results and issued compelling guidance for Q2. In Q1, we saw bookings, revenue, and gross margin all above the midpoint of the guided range, which cut our non-GAAP operating loss in half sequentially. We delivered 26% year-over-year revenue growth. Our Q2 guidance confirms that we expect to reach an important milestone in the quarter, that is delivering non-GAAP operating profitability for the first time since Q4 of 2024. From a cash perspective, Q1 was the first sequential growth in unrestricted cash on the balance sheet since the IPO in May of 2024. Our focus on financial discipline and predictability is delivering tangible results. Our team has rallied around this cause and is delivering solid results and important milestones. I want to start with more good news on the AI front. For the second quarter in a row, we secured a new FTCO AI-driven manufacturing customer engagement in Q1. We're in discussions with several more companies and expect one of them to close in Q2. We also received an order from an existing FTCO customer for new functionality. Momentum continues to build for our AI-driven manufacturing strategy, both in terms of new as well as existing customers. While market adoption of FTCO is still in the early stages, these are signs that momentum is building, and the market is responding very positively to what AI manufacturing development can unlock for our customers. Before providing more details on results, I want to give you an update on the company's strategic pivot on which Chris and I have been focused since joining the company. Our guiding principles have centered on playing to Silvaco's strengths, leveraging AI, targeting markets where we can build a top franchise, customer obsession, and financial discipline. Leveraging Silvaco's strengths means extending our lead in target markets and deepening the moat around core technologies. That means delivering differentiated AI-driven solutions for power, memory, foundry, and display segments. In power, we have unique advantages, particularly for wide band gap semiconductor process and product development. For memory, our partnership with Micron is an example of how we can deliver real value to the biggest and best companies in the industry. In technology, we will widen our lead in core areas, including multiphysics simulation, which was critical to the introduction of FTCO. AI is a crucial element of our strategic shift. We've deployed AI internally and are already seeing phenomenal results. We've seen up to 6x acceleration in graphical user interface development, up to 10x acceleration in new feature design and accelerated verification testing of IP. We've also built AI directly into more of our solutions. The best example is clearly AI-driven manufacturing or FTCO. Virtualized process development is turning into a must-have feature across the semiconductor industry. Other examples include building better mathematical optimizers and simulators and rolling out AI assistant, which increase ease of use. Deploying AI in our EDA tools means customers get to SPICE models quicker, design optimized layouts faster and optimize power, performance, and area in everything they design. Our AI-first approach to road map acceleration means that we are all in on developing optimized solutions that meet the needs of customers. We also remain relentless about financial discipline. With our $20 million cost reduction initiative largely behind us, we're now building discipline into the culture of the company. We think in terms of efficient process, streamlined structure, and cost optimization. Taken together, we believe that these strategic priorities position us well to grow the top line faster than peers and to grow profitability faster than revenue. I look forward to reporting updates on these strategic initiatives in the quarters ahead. But now let's turn back to quarterly results. We continue to see significant strength in TCAD. In Q1, TCAD bookings grew 13% sequentially and 49% year-over-year to $10.5 million. Revenue grew 10% sequentially and 22% year-over-year to $9.6 million. Growth in the quarter was driven by significant milestones for FTCO, including securing a new customer and broadening the product line to include additional functionality. Looking forward, we see solid momentum for FTCO. We see strong potential from engagements with governments, power applications, and semiconductor equipment companies. On the government side, we inherited engagements in Photonics from our Tech-X acquisition. We have real opportunities to leverage the broader Silvaco portfolio for meaningful future engagements. With equipment companies and power applications, we see growing interest in FTCO and digital twin modeling that we expect to generate compelling growth opportunities going forward. We see these trends, AI-driven FTCO, government engagements and power and equipment companies as drivers that will drive growth for quarters and years to come. After a strong Q4, we saw our semiconductor IP product line pause in Q1. Semiconductor IP delivered bookings of $3 million in the quarter, down 41% sequentially, but up more than 200% year-over-year. IP revenue was $4 million, down 21% sequentially, but up 270% year-over-year. Sequential softness in IP was driven by timing of new customer wins. We had a few key designs push out by roughly 1 quarter. Year-over-year trends in IP reinforce the fact that this business has reached a new baseline with the integration of Mixel's industry-leading MIPI PHY IP. Our IP sales pipeline continues to grow, particularly for our automotive soft IP and for Mixel PRO, our production-ready set of products that were introduced in the first quarter. Our IP pipeline has roughly doubled over the past year. These leading indicators support our view that we expect to deliver steady growth in IP through the rest of the year. We expect IP to grow sequentially into Q2 and to be our strongest grower this year. Turning to EDA. We saw a decline in Q1 bookings and revenue. Q1 bookings came in at $3.8 million with revenue of $4.1 million. Here, we continue to focus on shifting priority to a handful of core products that we believe can deliver significant growth. We talked last time about potential for Jivaro as one of those core offerings. Another focus area is Utmost, which is a database-driven platform for device characterization and SPICE model extraction. We just released an AI-driven version of Utmost, which now delivers up to 10x performance improvements, a machine learning optimizer and other runtime enhancements. This is another example of how the team is building next-generation AI-driven solutions. Jivaro and Utmost are just two of the core EDA products that are positioned for growth as we focus development, sales, and field application resources on these drivers. We expect stability in this area of the business in the short term and then a return to growth as these new priorities deliver results. While I'm proud of the progress we've made in a short amount of time, I also recognize the task before us. We've made great strides in stabilizing the business, enhancing liquidity, and streamlining operations and focusing strategically on the core products that we expect will deliver accelerated growth and profitability. We all look forward to driving our semiconductor IP business to new heights, getting EDA back to growth, and seeding the momentum we see in FTCO. We all continue to believe that the best is yet to come. I look forward to seeing how far we go in the coming quarters. I'd now like to turn the call over to Chris, who will discuss our financial results and our outlook in more detail. Chris? Chris Zegarelli: Thanks, Wally. Good afternoon, everyone. In Q1, we delivered $17.2 million in bookings and $17.8 million in revenue, both above consensus and above the midpoint of our guided range. Bookings and revenue both grew 26% year-over-year. Strength in the quarter came from TCAD. We won another new FTCO customer in the quarter and partnered with an existing FTCO customer to add new functionality to their deployment. Looking forward, we see strong interest in FTCO and expect to close one more new FTCO customer in Q2. From a geographic perspective, we saw the most growth in Q1 from the Americas region, which grew 24% sequentially and accounted for 44% of total revenue in the quarter. Looking down the P&L, GAAP gross margin in Q1 was 86.4% and non-GAAP gross margin was 87.9%. GAAP and non-GAAP gross margin sequentially increased by 305 and 235 basis points, respectively, and came in ahead of guidance and consensus. GAAP and non-GAAP gross margin also increased 779 basis points and 788 basis points year-over-year, respectively. Both GAAP and non-GAAP gross margins have benefited from our restructuring activities. We believe gross margins will remain in this range of mid- to upper 80s going forward. GAAP operating expenses were down 4.5% sequentially to $21 million. Non-GAAP operating expenses were down 3.6% sequentially to $16.1 million, above the midpoint of the guided range. From a total cost perspective, which combines operating expenses and cost of sales, GAAP total costs declined 6.5% sequentially and non-GAAP total costs declined 5.6% sequentially. Q1 results are the first time since the IPO when total non-GAAP spending declined in 2 consecutive quarters. Our guidance into Q2 indicates that spending is expected to continue declining sequentially. GAAP operating loss improved quarter-over-quarter to a $5.7 million loss. Non-GAAP operating loss was $471,000, well ahead of Q4 and ahead of expectations. GAAP net loss in the quarter was $5.9 million, and GAAP EPS was a $0.19 loss. Non-GAAP net loss in the quarter was $574,000 and non-GAAP EPS, a $0.02 loss. Next, turning to the balance sheet and cash flow. Cash and cash equivalents at quarter end was $10.9 million. As of Q1, we no longer have restricted cash on the balance sheet. Recall, cash, cash equivalents and marketable securities at the end of 2025 was $18.3 million, which included $8.3 million of restricted cash. Therefore, unrestricted cash at year-end was $10 million. Unrestricted cash grew almost 10% sequentially in Q1, the first-time unrestricted cash grew sequentially since the IPO. Net cash used in operating activities in Q1 was $11 million, up from $9.5 million in Q4. Please note that this $11 million included the $8.3 million final litigation settlement payment as well as $1 million in severance payments. Net of litigation and severance, net cash used in operating cash flow would have been $1.7 million in Q1. Adjusting for these same two factors, litigation and severance, Q4 net cash used in operations would have been $7.4 million. The improvement from $7.4 million to $1.7 million speaks to the meaningful improvement in our underlying economics. The improvement also supports our view that we will see positive operating cash flow by Q3. During the quarter, we also signed a nonbinding term sheet with our banking partner for a $10 million revolving line of credit. We expect to close on this facility during Q2. Now turning to guidance. For Q2 2026, we expect bookings of $19 million plus or minus 10%, revenue of $18 million plus or minus 10% non-GAAP gross margin around 88%, non-GAAP operating expenses of $15.5 million plus or minus 5%. In closing, the team delivered on several milestones in the quarter. We secured a second AI FTCO customer in as many quarters. We delivered growth in unrestricted cash for the first time since the IPO. We delivered 2 sequential quarters of spending reduction for the first time since the IPO. We see gross margins at highs and see non-GAAP operating profitability coming in Q2. Wally and I want to thank the team for delivering these strong results. We look forward to continuing to deliver on our commitment to profitable growth. With that, operator, we will now take questions. Operator: [Operator Instructions] Our first question comes from Robert Mertens from TD Cowen. Our next question comes from Blair Abernethy from Rosenblatt Securities. Blair Abernethy: I apologize; I was not able to listen to the whole first part of your prepared remarks. So, if you've already repeated -- if this is a repeat, just let me know. But let's talk about the FTCO, in particular, the pipeline. It's interesting in your comments in your press release about governments looking at this, semiconductor equipment companies looking at this. Maybe, Wally, you can give us a sense of what does the market universe looks like to you today for the FTCO? Walden Rhines: Yes. I'm glad you brought this up because the diversity of users is surprising even us. We started out, our big partner, of course, was Micron, initially developing the basic capabilities. But we've found that it's applicable in a variety of other areas. It's applicable with equipment companies and a different application again this quarter. As we mentioned, we've engaged with more in the coming quarter and are quite confident that at least one of those will close. And I think it just reflects on the capability it brings. You bring together a lot of data, you generate a lot of synthetic data, you build models and then people can use it to guide the pathway for evolving their processes, whether they are developing manufacturing equipment or putting a process in place, moving to a next-generation node. It just seems to have a great deal of very broad applicability. Blair Abernethy: Is the equipment makers looking at this in terms of design and development of their own equipment or in terms of working with their customers? Walden Rhines: So, it's both. It is, in fact -- it does, in fact, give them an ability to tune their equipment, develop recipes, figure out results. But the -- one of the specific cases that was brought to my attention in the meeting with the customer this quarter was they want to accelerate the time it takes for setup of equipment. And by having a reliable model, they can, in fact, tune in what the ultimate results should be from the process step and therefore, drive how the setup should be done. Saves time. Time for capital equipment is depreciation cost. And so, their customers appreciate it and also appreciate the fact that they're able to process more in a shorter period of time. Blair Abernethy: So, is this -- if I got this right, Wally, is this a digital twinning for the install, effectively, the install and setup? Walden Rhines: It is indeed. It is a digital twin that is able to simulate the actual behavior based upon what variables are input to the equipment or in the process recipe, the inflow of materials. Blair Abernethy: So, is there an avenue here, maybe I'm stretching this, but is there an avenue here whereby the equipment makers could be your partner in selling the FTCO to an end fab? Walden Rhines: The existing engagements hadn't really addressed that, but I suppose that is a possibility going forward because, whereas they provide it for their particular piece of equipment, it's quite possible that the customers would ultimately want to license it more broadly, and we're able to address multiple different types of equipment because we have built a database associated or a set of tools associated with many different types of equipment. So, at the very least, it could be an introductory point. As far as will we set up an arrangement to OEM the product. Haven't done that yet, but that certainly is a possibility. Blair Abernethy: Okay. Okay. Interesting. And the other question I had was just around the IP business, which was up quite strong year-over-year. How much of that was really -- was Mixel? And how -- maybe how is the opportunity pipeline of the funnel looking for your IP business? Walden Rhines: Well, as we mentioned, the IP business looks very strong for the rest of the year, and much of the growth year-to-year comes from the addition of Mixel. So, we had engagements in both. They are both contributing. And I would expect that as we go through the year, we'll start to see some additional contributions from the off-the-shelf or the production ready. Right now, it's all the traditional Mixel business complemented by a near equal amount of the traditional IP business that involves memory compilers, cell libraries, and other standardized foundational IP. Chris Zegarelli: And as we had indicated earlier, Wally, to that point, the pipeline organically has roughly doubled for that business in the last year, and it's even more than that if you layer in the added opportunities that came from the Mixel acquisition. So, the pipeline trends are very encouraging in that business. While it did have a pause in Q1, we do see indicators of returning to growth sequentially in Q2. Blair Abernethy: Okay. Okay. Great. And then, Chris, just to ask you here, the -- it looks like your OpEx guide for next quarter, $15.5 million plus or minus. Are you -- is that -- are we down to the level that you wanted to be at? Is there more change or any more significant change as we kind of move from Q2 into Q3? Or is the business kind of where you want it? Chris Zegarelli: Good question. As Wally and I kind of indicated when we joined, we do want to drive the business to profitability at flattish revenue. And I think the guide into Q2 indicating positive non-GAAP operating income is an indicator of that. And so, there are still some costs to come out. Blair, some of the international reductions do take some time. So, there are some downward trends in there, but there are also some tactical things we're investing in like the AI tools that Wally alluded to earlier. And so, my sense of it is it's in a pretty good spot now. It probably trends down to flattish from here. And I think we're going to be focusing on those growth drivers that we talked about. I mean IP is a good example, lots of good indicators of strength on the FTCO side. And you can see that even in the TCAD product line number, sequential growth, good year-over-year growth, really encouraging. And as IP gets to growth, that will just be an adder to that, and we should see some good leverage from that continued growth from here. Blair Abernethy: Okay. Great. And last question for you, Chris. Did you -- I didn't see it, but is there a backlog number that you provided? Or will there be one in your queue? Chris Zegarelli: We indicated bookings. We talked about revenue. We didn't put a backlog number there, but you can look for the additional information posted online to see if you find what you need. Operator: Our next question comes from the line of Craig Ellis from B. Riley Securities. Rebecca Zamsky: This is Rebecca Zamsky on for Craig Ellis. My question is on TCAD bookings, which I believe you said was $10.5 million, which were up 50% year-over-year. Is this run rate sustainable? And how should we be thinking about TCAD going through this year? Walden Rhines: Yes. So, I think TCAD is a solid core business for the company. As you can see, it grew substantially year-to-year. I don't think the 50% growth continues, but we will see growth. I think it will be a solid business. And I'd note that our FTCO business is part of these TCAD numbers. It's reported in that segment. So, we have the benefit of the growth in a new and rapidly emerging business in FTCO. And then we have the basic strength of the TCAD business itself, which is doing well and should continue through the year. Rebecca Zamsky: Great. And on the FTCO wins, I believe you flagged there was one customer in Q1 and another one expected in Q2. Is this going to start becoming like a recurring quarterly event? Or would the new wins continue like, still be lumpy? Walden Rhines: Well, we certainly hope so. And based upon the customer visits and interaction that we've had, I think we're quite hopeful that we'll be regularly adding new FTCO customers. And as I mentioned, they don't have to be the same type of application as ones in the past. We're continuing to find new applications and that, too, should help the growth of and the discovery of new possibilities. Operator: Our last question comes from the line of Robert Mertens from TD Cowen. Robert Mertens: Thanks for letting me ask a question on behalf of Krish Sankar. I just wanted to maybe triangulate within your guidance for the June quarter, it looks like sales are kind of flat, slightly up sequentially, and you had mentioned in your commentary some strength in the IP business growing through the year. Is it fair to say that next quarter that TCAD is probably growing into the June quarter as well and then maybe the EDA business contracts? Walden Rhines: Chris? Chris Zegarelli: Yes, I can take that one, Wally. Yes, I think it's fair to say that IP does grow sequentially. EDA could be flat to downish a little bit. TCAD could be flattish to up a little bit is kind of the way that we're thinking about it. But I did just want to provide a little extra color. There was an earlier question on remaining performance obligations or backlog, that number is at about $46.6 million in the quarter. So down slightly from what we saw in Q4, but remaining in that elevated high 40s range for the business. Robert Mertens: Got it. And then maybe just a quick follow-up, just to get clarification. I think this was asked just in terms of the OpEx number. But are you sort of expecting these levels that you guided for the June quarter in the back half of the year? Is there any sort of savings on the SG&A line you expect to continue to bring down? Chris Zegarelli: From an OpEx perspective, yes, as I indicated, there are continued downward pressures on spend. There are some of the targeted reductions that will be playing out in the coming quarters, most notably on the international side, some reductions do take a little bit more time than they do in other jurisdictions. There are some targeted places where we're making some incremental investments. The AI tools are one of them, and Wally alluded to solid indicators that we see a good ROI from those investments in terms of accelerating and broadening the road map. So, we're encouraged to see those benefits roll through the business and deliver upside to revenue. So, I do see a continued trend to kind of down a bit to flattish, as I said, on the OpEx side. And the pipeline has been encouraging, and it continues to grow. Most notably, IP pipeline has been growing really nicely. And so, we do see room for growth from here, particularly on the IP front. But as that FTCO continues to roll through the business and the wins continue to build, that's an obvious tailwind on the TCAD side as well. Operator: [Operator Instructions] With that, this concludes the question-and-answer session. I would now like to turn it back to Walden Rhines for closing remarks. Walden Rhines: Well, thank you. We're pleased with the continued momentum in our business, looking forward to profitability next quarter and the AI-driven FTCO continues to provide a great opportunity for us moving forward. Like so many businesses, AI is helping us both internally and helping us with our customers and creating new business opportunities. We look forward to sharing them with you in the coming quarters. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and thank you for standing by, everyone, and welcome to the Amtech Systems Fiscal 2026 Second Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Jordan Darrow of Darrow Associates, Investor Relations. Please go ahead. Jordan Darrow: Thank you, and good afternoon, everyone. We appreciate you joining us for the Amtech Systems Fiscal 2026 Second Quarter Conference Call and Webcast. With me today on the call are Bob Daigle, Chairman and Chief Executive Officer; and Mark Weaver, Interim Chief Financial Officer. After close of market today, Amtech released its financial results for the second quarter of 2026. The earnings release is posted on the company's website at www.amtechsystems.com in the Investors section. Before we begin, I'd like to remind everyone that the safe harbor disclaimer in our public filings cover this call and the webcast. Some of the comments we made during today's call will contain forward-looking statements and assumptions that are subject to risks and uncertainties, including, but not limited to, those contained in our SEC filings, all of which are posted on the Investors section of our corporate website. The company assumes no obligation to update any such forward-looking statements. You are cautioned to not place undue reliance on forward-looking statements, which speak only as of today. These statements are not a guarantee of future performance, and actual results could differ materially from current expectations. Among the important factors, which could cause actual results to differ materially from those in forward-looking statements are changes in technology used by customers and competitors, change in volatility and the demand for products; the effect of changing worldwide political and economic conditions, including trade sanctions; and the effect of overall market conditions, including equity and credit markets and market acceptance risks; ongoing logistics, supply chain and labor matters and capital allocation plans. Other risk factors are detailed in our SEC filings, including our Form 10-K and Form 10-Q. Additionally, in today's conference call, we will be referencing non-GAAP financial measures as we discuss the financial results for the first quarter. You will find a reconciliation of those non-GAAP measures in our actual GAAP results included in the press release issued today. I will now turn the call over to Amtech's Chief Executive Officer, Bob Daigle. Robert Daigle: Thank you, Jordan. Revenue for the quarter was $20.5 million, which was up over 30% from the same quarter last year and up 8% sequentially. Our adjusted EBITDA was $2.5 million or about 12% of sales, an increase of $1.1 million from the prior quarter and $3.9 million from a year ago. While reported revenues were at the high end of our guidance range, our adjusted EBITDA margin was a significant beat, as we had guided to high single-digit EBITDA margins. Higher gross margins contributed to our improved profitability and cash generation. Gross margin approached 48% in the second quarter, up from 45% in the first quarter. Cash on hand at the end of the quarter was $24.4 million, an increase of $2.3 million from the prior quarter and $11 million from a year ago. AI-related sales accounted for over 30% of our Thermal Processing Solutions segment revenue in the second quarter and bookings were very strong. Momentum for AI-related demand continued to build in the second quarter. Advanced packaging has emerged as a critical bridge between silicon innovation and the escalating demands of artificial intelligence infrastructure. As traditional Moore's Law scaling slows, the ability to pack more computing power into a single footprint now relies less on shrinking individual transistors and more on how those chips are interconnected. By enabling high-bandwidth memory integration, reducing data latency through 2.5D and 3D stacking and allowing for massive system-on-package architectures, advanced packaging provides the physical foundation necessary for generative AI and large language models to thrive. In short, packaging is no longer just a protective housing for chips, it is a primary driver of the performance, power efficiency and scale required to fuel the next generation of AI processors. Capital equipment, which can deliver high yields and throughput is vital to support this AI revolution. As broadly reported, semiconductor OEMs and OSATs continue to increase investments to expand capacity to support the massive AI infrastructure build-outs. Demand has been very strong for our advanced packaging equipment and AI server board assembly equipment due to our differentiated capabilities that include TrueFlat technology and market-leading temperature uniformity, which enables high yields when producing these very complex and expensive products. Although we have limited visibility due to our short lead times, our channel checks support our belief that demand will remain very strong for the foreseeable future. Based on bookings and quoting activity, we expect the percentage of revenue from AI applications in our Thermal Processing Solutions segment to exceed 40% in the third quarter. We are also seeing increased quoting activity and bookings for panel-level packaging. These more demanding packaging technologies are serving more mainstream semiconductor applications, but their process requirements align very well with our differentiated capabilities. To accelerate growth, we're continuing to invest in next-generation equipment to support higher density packaging to address emerging customer requirements. We plan to launch the first product for higher-density packaging at the SEMICON trade show in Taiwan in early September. We believe the capabilities provided by our next-generation equipment will significantly increase our addressable market and help drive growth beyond 2026. Growth of our Thermal Processing Solutions parts and service business was also a highlight in the quarter. Customer outreach initiatives have helped drive growth with revenue up 10% sequentially and 56% year-over-year. I should note that while we are benefiting from demand for our products to support the AI build-out, we are also beginning to use AI software integrated with our ERP and CRM sales tools to help support customers and streamline our sales process. For our Semiconductor Fabrication Solutions segment, we continue to leverage our foundry service and technical capabilities to pursue applications from customers not well supported in the industry. We have built a strong opportunity pipeline and are expanding efforts to replicate successes and grow sales of legacy products. Overall, our IDI chemicals business revenue was up 15% year-over-year. We have also made significant improvements in the service levels we provide and have driven outreach initiatives to grow our parts and services business at Entrepix. Revenue for parts and service at Entrepix was up about 40% year-over-year. I'm very encouraged by the early results from our customer-centric growth initiatives. Unfortunately, much of the success from these initiatives in our Semi Fab Solutions segment has been masked by weak sales of our PR Hoffman products due to weakness in demand from our major silicon carbide customers. As I've stated before, 2026 will be an investment year for our SFS business as we execute on our strategy to overserve the underserved, but we believe that our customer-centric growth initiatives will deliver reoccurring revenue streams with meaningful profits beyond 2026. The operating leverage and working capital efficiency across the company resulting from our product line rationalization efforts and a migration to a semi-fabless manufacturing model over the past 2 years helped deliver improved results for the quarter and should result in continued strong cash flow and further increases in gross margins and EBITDA margins as revenues increase. Our semi-fabless model, which includes -- concluded the consolidation of our manufacturing footprint from 7 facilities to 4 should also allow us to significantly increase revenue with minimal capital expenditures. We ended the quarter producing 9 reflow systems per week and have the capacity and supply chains to accommodate the growth we expect with little or no CapEx. In summary, growth opportunities driven by AI infrastructure investments and our customer-centric set strategy, combined with strong operating leverage that results from our asset-light semi-fabless business model position us very well to deliver meaningful shareholder value. Before I hand the call over to Mark, I have 2 organization announcements to share. First, as we announced last week, Tom Sabol has been appointed as CFO and will be joining Amtech on May 14. Tom brings more than 20 years of CFO experience across publicly traded and private equity-backed organizations with deep expertise in developing and leading finance teams, driving financial performance, Investor Relations and SEC reporting. His background spans several industries, including financial services, software and advanced manufacturing. I look forward to working closely with Tom, as we continue to drive growth and profitability. I would like to take a moment to recognize and thank Mark Weaver for stepping in as interim CFO. Mark came out of retirement to help us with this transition, and I greatly appreciate his support and his leadership. I am also pleased to announce that Guy Shechter will be joining Amtech on May 19 in a newly created President and Chief Operating Officer role. Guy has held various commercial and general management positions with semiconductor equipment and advanced packaging equipment companies. The extensive experience, customer relationships and leadership skills that he brings to Amtech will be critical as we expand our portfolio of solutions for AI applications to accelerate growth. I'm looking forward to having Guy join the Amtech team. Now I'll turn the call over to Mark for more details concerning our Q2 results. Mark Weaver: Thank you, Bob. Once again, it's been a pleasure working with you and the folks at Amtech. I've truly enjoyed my time here. Now I'll review the financials for the fiscal '26 second quarter. Following the 2-year-plus transformation led by Bob, the company is finally at a place where year-over-year revenue comparisons are meaningful. The one consistent characteristic of our revenue comparisons over the past few years has been the positive impact of AI product demand within the TPS segment. In the second quarter of 2026, AI revenues accounted for more than 30% of TPS segment revenue. Bookings for AI applications remain strong, and we are experiencing both book and ship in the same quarter as well as book now and ship later on. This has led to the second consecutive quarter of company-wide bookings exceeding sales for the period. Other areas of TPS and SFS sales are also contributing growth on a consolidated basis, which is being partially offset by weakness in select product lines, as Bob discussed in his remarks. Total SFS revenues were $5.7 million in the second quarter, up 15% from approximately $5 million in both the first quarter of 2026 and the second quarter of 2025. Moving on to gross margins. The company's product line rationalization and our focus on growing higher-margin product lines, including AI advanced packaging solutions as well as our recurring parts services business are delivering their intended results, particularly as we are benefiting from greater scale. Gross margin as a percentage of sales increased to 47.7% in the second quarter of 2026, up nearly 300 basis points from 44.8% in the first quarter of '26. Comparison to the prior year period is not meaningful since that quarter included a $6 million noncash inventory write-down as part of our broader turnaround and transition, which took margins into negative territory in the second quarter of 2025. Selling, general and administrative expenses increased $0.3 million sequentially from the prior quarter and were relatively flat as compared to the second quarter of 2025. The increase is primarily due to expanding business activities, tax and IT consulting fees. Research, development and engineering expenses were relatively flat compared to prior periods. The company continues to invest with a measured yet opportunistic approach to R&D, including next-generation products targeting the AI supply chain and our specialty chemicals business. GAAP net income for the second quarter of fiscal 2026 was $1.2 million or $0.08 per share. This compares to GAAP net income of $0.1 million or $0.01 per share for the preceding quarter and a GAAP net loss of $31.8 million or $2.23 per share for the second quarter of fiscal '25. During the second quarter of 2025, the company recorded significant noncash inventory write-downs and impairment charges, which make the year-over-year comparisons for profitability not really meaningful. The company's second quarter of '26 GAAP net income includes $0.3 million of foreign currency exchange losses versus $0.2 million in the prior quarter, primarily driven by a weakening United States dollar against the Chinese renminbi. Unrestricted cash and cash equivalents at March 31, 2026, were $24.4 million compared to $22.1 million at December 31 and $17.9 million at September 30 and $13.4 million a year ago. The increased cash balances are due primarily to the company's focus on operational cash generation, working capital optimization, strong accounts receivable collections and accounts payable management. The increase in cash from the first quarter of this year is even more meaningful since we are carrying an additional $0.9 million in inventory to accommodate higher order flow. The company continues to have no debt. As for the $5 million stock repurchase program, the company did not use any cash for this, as no shares were repurchased since the plan was put in place on December 9. Now turning to our outlook. For the third fiscal quarter ending June 30, 2026, the company expects revenue in the range of $20.5 million to $22.5 million. At the midpoint of this range, our guidance is meaningful year-over-year and sequential quarter increase. AI-related equipment sales for the Thermal Processing Solutions segment is anticipated to drive the majority of our revenue growth and account for as much as 40% of the segment's sales in the third quarter of 2026. With the benefit of continued top line growth and the sustainable improvements in structural and operational cost reductions, Amtech expects to benefit from its operating leverage to deliver adjusted EBITDA margins in the low double digits range. The outlook provided during our call today and in our earnings press release is based on an assumed exchange rate between the United States dollar and foreign currencies. Changes in the value of foreign currencies in relation to the United States dollar could cause the actual results to differ from expectations. And now I will turn the call over to the operator for questions. Operator: [Operator Instructions] And today's first question comes from Scott Buck with Titan Partners. Scott Buck: Bob, I was hoping to get a little more granularity on gross margins in SFS. It looks like it was up about 800 basis points sequentially. So any kind of added color on what's going on there would be great. Robert Daigle: Yes. Again, I think a lot of -- revenue contributed -- the additional revenue contributed a bit to that. And I think the balance would really be mix related. There wasn't anything really structurally different quarter-to-quarter in that segment, more reflective of the mix of products through that business and then the incremental revenue. We have a lot of operating leverage. As you might imagine, with the -- basically the structural changes we've made over the past couple of years, we've positioned ourselves where we do get very solid flow-through of any incremental revenue to our overall results. Scott Buck: Great. That's very helpful. And then I want to ask about kind of geographic mix and how you're seeing demand trends across regions. Robert Daigle: Yes. So as you might imagine, Asia is really the hotbed for AI infrastructure build-outs. Traditionally, in the packaging area, it's been almost exclusively Taiwan, but what we're seeing is a significant build-out of packaging infrastructure in other parts of Southeast Asia, Thailand, Malaysia, Indonesia, India, for example. So we're seeing a broadening of geographic footprint in terms of major investments in the packaging area for almost all driven by AI infrastructure. And I'd say more recently, we're seeing quite a bit more activity, I'd say, in North America as well. It was pretty quiet, but we're starting to see some investments being made. I'd say more so on the enterprise level board assembly at this stage than chip packaging, but it's nice to see some increased AI activity in North America as well. Scott Buck: That's helpful. In terms of Asia, should we be keeping an eye out on any kind of trade policy, tariff or supply chain dynamics? Robert Daigle: Yes. Specific to the tariffs, we positioned ourselves pretty well there where if you go back a year ago, any equipment coming into the U.S. was basically being manufactured in China. And obviously, there were very meaningful tariff impacts as a result of that. But we did establish a partner where we now manufacture equipment for the U.S. in Singapore, Malaysia area. So we've kind of insulated ourselves quite a bit from the U.S.-China stress levels. And beyond that, there really haven't been a lot of, I'd say, across Asia issues. I'd say back to your supply chain question, everyone is talking about memory being more expensive. And obviously, that's same for us, and we have to adjust our cost and pricing accordingly if memory becomes more expensive. We really haven't seen any shortages, however, I would say it's more -- there's a little bit of price pressure that we need to deal with and pass along on the memory side. Scott Buck: Okay. Great. And then last one for me. Cash continues to improve. How should we be thinking about capital allocation? Or I should say, how are you thinking about capital allocation? You have the $5 million repurchase authorization out there. Is that a priority? Or is it more R&D investment in new products or even potentially M&A? Robert Daigle: Yes, let's -- Yes, I'd say growth is number one, right? Because back to the operating leverage discussion, as we grow with the strong margin leverage we have in our portfolio, and I should mention with all the product lines that we cut from the portfolio rationalization efforts, I would say really across the board, we have very healthy margins across the entire portfolio right now. So any of the product lines that grow are very meaningful in terms of improving cash generation, gross margins and EBITDA. I'd say from an investment standpoint, we are making those investments. We've been increasing -- we have our R&D efforts around next-generation equipment. There could be a little bit of incremental investment needed to drive that home. We're investing in resources to develop the pipeline for SFS in terms of trying to build out our IDI portfolio and the recurring revenue streams. We'll continue to incrementally invest in that. I don't see that having a meaningful impact on cash needs. And then the other factor I think we want to point out is with our semi-fabless model, we have the ability to scale without meaningful CapEx. As I mentioned in my comments, with -- even looking out a year in terms of high growth and demand for the equipment used for AI packaging, we don't really see the need for deploying meaningful cash for CapEx. Our semi-fabless model and our supply chain can handle that growth. So having said all that, long story short is if we find -- we're active, if we could find inorganic opportunities, we would deploy cash accordingly. But as I've said to many people, I spent over a decade doing corporate development in a prior life. And I would say we need to be prudent, cautious and make sure that what we do is generating real meaningful value. So we're going to be -- when people ask me, are you going to acquire? I always answer the question with maybe because if we find acquisitions that can create real value, we're going to do those to accelerate growth. But we do have a great pipeline of organic growth that I think can push us forward. And then back to your question about capital allocation, obviously, first priority is growth. If we don't have -- if we didn't have better uses for that, then, of course, we would look at providing the cash back to shareholders in some form. Operator: [Operator Instructions] And the next question comes from George Marema with Pareto Partners. George Marema: I just want to give you kudos for the tremendous transformation over the last 2 years and with the business and now you're starting to see the fruits of that operating leverage, it's fantastic to see this. So thanks for that. First question I have is on the change we've seen recently with being very GPU dominated to now a lot more of the CPU and CPUs being more advanced packaging requirements demand. I wonder if you can kind of size up and differentiate what this means to Amtech in terms of opportunities and velocity of capacity adds going forward? Robert Daigle: Yes. My sense, George, is I would -- it's a very favorable tailwind for us in that if you think about our business and in terms of how we package semiconductor packaging or enterprise board assembly for that matter, a lot of it has to do with units and size of those units, right? And I think as many on the call may be aware, you start -- even going back to the -- you look at the Blackwell versus Rubin GPUs where the size of the packages are getting much, much larger is very beneficial. Because what we do is we -- you can kind of think about what we're providing is very much based on area of production. So it's the size of the packages, and it's a number of packages. So when you hear people talk about the number of CPUs, maybe I've heard numbers as much as, what, 10:1 against GPUs, TPUs to do a lot of the localized processing for AI. I think that bodes very well for volume production in the industry, which typically bodes very well for us. So we think it's a tailwind. It's too early to -- we're going to try to get our arms around what this could mean in terms of additional acceleration. But I think it's very positive. It's hard to put my arms around the numbers at this stage. George Marema: Okay. I was curious on the silicon carbide side of the business, with the increasing demand drivers of lots more automotive AI content, power, higher voltages, thermal performance requirements, et cetera, do you see any demand outlook increasing on these areas in the next year or so? Robert Daigle: Yes. Possibly, but I do have -- I temper -- when I look at the big driver for silicon carbide was really the EVs, the electric vehicles. And a lot of that growth is really being driven primarily in Mainland China today, which is less of an opportunity for us than in the West. I do think the AI infrastructure will drive some demand increase. It's hard to -- I think we're quite a ways away from that impacting capital equipment needs because a lot of the Entrepix volume, if you go back 2, 3 years ago, was capital equipment as they were ramping up infrastructure for EV. I don't think there's enough demand there yet to drive any of that. And I do think the cost pressures on the silicon carbide side in the West and the tremendous capacity that's put into China that's competitive, it could come back. I just wouldn't put -- I'm not emphasizing that, frankly, George, as a major growth driver for us. It could be helpful, but I do think eye on the ball over here is really maximizing our opportunities around packaging and assembly and AI, and it's building out that specialty chemicals annuity business that if you want to -- in terms of where our best investments can be made to drive value. George Marema: Speaking of chemicals, on your chemical side of the business, are you doing much R&D in the -- for addressing all the polymers, adhesives, et cetera, for advanced packaging, semiconductor for like -- that addresses melting and warping and cooling and signal loss, all that sort of stuff? Robert Daigle: We're mostly cleaners, lubricants. We do have some coolants, however, in the processing of primary wafers, more so at the wafer level, though, than -- or optics. I would say optics is an area we're paying more attention to, as you might imagine, than the chemicals and the packaging area. But I do see opportunities -- significant opportunities, frankly, in optics or optical-related semiconductor production, and we're pursuing those. George Marema: Do your cooling chemicals and equipment, do they kind of help address these warpage yield problems that are emerging at the leading edge now? Robert Daigle: Not so much. I think no, but I wouldn't say they do. I think the warpage where we benefit is on the packaging, which is our TrueFlat technology. That's really where we shine, George. If you've got a $30,000 processor that you're trying to assemble, you need to keep it flat. And I would say that's where we really do well with our TrueFlat equipment. Operator: And the next question comes from Craig Irwin with ROTH Capital Partners. Craig Irwin: Last quarter, the small delay in one of your AI customers in taking some packaging equipment had a big impact on your stock. Did we maybe see the delivery of that equipment in this current period, or is it expected over the next couple of months? And do you expect the linearity or the overall business to have sort of a smoother trajectory given the size and the scale that you're gathering over the next couple of quarters? Robert Daigle: Yes. We did ship that particular equipment during the quarter. And I'd say that the visibility, I wouldn't say it's great, but it is getting better because there's a lot more activity in terms of new facilities being put in. And so we are seeing more bookings with deliveries out a quarter and in a couple of cases, actually a couple of quarters now, which is very unusual for our business because, as I mentioned before, we have very short lead times. We've got a very efficient supply chain, turn equipment around very quickly. So we've typically been a book and ship even in this large-scale capital equipment space. But having said that, because people are actually building new facilities now and don't necessarily need all the equipment immediately, we're seeing better visibility, which I think will translate back to -- I think a good point is that it should start to smooth things out a bit, frankly, as we get better visibility and bookings that aren't just current quarter, but out of ways. Craig Irwin: That definitely makes sense. The next question is one that I get asked fairly often, right? It's more of a big picture question, Bob. So can you talk a little bit about Amtech's moat in advanced packaging and AI? What's allowed you to dominate this space? There are others that would like to do business in here, but you've maintained a really strong reputation on technology. It's allowed you to have those long-term customer relationships and supplier relationships, too. What's different about what you're doing that gives you this moat? Robert Daigle: Yes, because, generally, we win when it's a demanding application, and there's actually 3 components that usually come into play. I'd say in advanced packaging, that TrueFlat technology, and it's -- unfortunately, we don't have graphics in front of you, but these are large conveyorized piece of equipment, let's say, almost half the length of a tractor trailer bed that are doing the reflow operations for these packages and you're raising things at very high temperatures. Most materials, most substrates, and I think George earlier was alluding to this tend to bow and twist and deform as you're heating them up. And we have technology which allows us to -- it actually pulls a vacuum, it holds the substrates down flat against the belt. So things don't basically shift during the assembly process. And what does that mean? That means high yield. So in applications where you're trying to process something that's very expensive, you need -- you're not going to sacrifice yield, you've got to have equipment that's going to be robust. The other thing I'd say is temperature uniformity. I think we have a significant advantage in terms of being able to provide uniformity across our refloat, across the belt within zones. Our latest equipment actually has reconfigurable zones that can be customized by customers, so we've provided capabilities that really are enabling for high yield, high throughput processing of these things. And I'd say the last thing, which I think I've mentioned before, like our Aqua Scrub technology, for example, where we can remove the contaminants from the processing fluxes out of the gas stream so that it reduces downtime in the ovens and reduces the risk of contaminating the product. So we've got a bunch -- I mean, it's not just one -- I guess that's the tough part, Craig. It's not one thing. We've got a portfolio of capabilities and IP around some of these capabilities that put us in a position where if you're trying to do -- you're trying to process an AI package, an AI enterprise board, it's expensive, we're worth it. I guess I'd say, which is why we've captured the strong position, market position that we have today and enjoy today. Operator: And this concludes today's question-and-answer session. I would now like to turn the conference back over to management for any closing remarks. Robert Daigle: All right. Thank you, operator. In closing, I want to thank everybody for joining our earnings call today. We look forward to seeing some of you later this month at the B. Riley Annual Investor Conference and then in June at the Planet Microcap Conference. We hope you can join us at either of these events. And thanks again for your continued support of Amtech Systems, and have a good evening. Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
Minh Merchant: The press release announcing The Oncology Institute's results for the first quarter of 2026 are available at the Investors section of the company's website, theoncologyinstitute.com. A replay of this call will also be available at the company's website after the conclusion of this call. Before we get started, I'd like to remind you of the company's safe harbor language included within the company's press release for the first quarter of 2026. Management may make forward-looking statements, including guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our filings with the SEC. This call will also discuss non-GAAP financial measures such as adjusted EBITDA and free cash flow. Reconciliation of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC and available on our website. Joining me on the call today are our CEO, Dan Virnich; and our CFO, Rob Carter. Following our prepared remarks, we'll open the call for your questions. With that, I'll turn the call over to Dan. Daniel Virnich: Thank you, Minh. Good afternoon, everyone, and thank you for joining our first quarter 2026 earnings call. I'm pleased to report a strong start to 2026 in the first quarter, driven by continued expansion and performance of our value-based contracts across markets and the ongoing growth of ancillary services, particularly our pharmacy business, which provides us with confidence to reaffirm our 2026 outlook for revenue and full year adjusted EBITDA profitability. As noted in our earnings release, we are also pleased to meaningfully update our free cash flow projections for the year to a positive range of $5 million to $15 million, reflecting our ongoing performance and improving economies of scale as we grow. None of this would be possible without continued commitment to high-quality oncology care by our physicians and staff across the 5 states we operate in every day. There are a few key highlights from the quarter that I would like to now review. First, revenue of $147 million was up 41% year-over-year, driven by strong capitated revenue growth and record performance from our Specialty Pharmacy business. Record Part D sales drove pharmacy revenue up 78% in the quarter compared to the first quarter of 2025, reflecting overall growth in patient encounters and continued operational execution on prescription fills. As a testament to the durability and replicability of our clinical model, we saved nearly $2 million in Medicare spending as part of the CMS Enhancing Oncology Model performance program in period 3, increasing the savings generated from the previous period, while maintaining the high-quality care we deliver to the members we serve in the community. We believe that this ongoing recognition from CMS underscores the clinical and economic value of TOI's integrated approach to oncology care applied to all patient populations, not just capitated members. Turning now to operations. I would like to walk through some key updates from the first quarter. Our work in Florida continues to be a critical proof point for our model in one of our newer markets, and I'm pleased to share meaningful progress on several fronts. We are now generating a profit in the Florida market. This is an important milestone that reflects the maturation of our capitated relationships in the state and validates the model we have been building. Our initial members under delegated capitation partnerships continue to show data points demonstrating excellent clinical outcomes, with MLR performing in line to slightly better than planned. As a reminder, we target a mature MLR of approximately 85% for new delegated capitation contracts, and we are now achieving that with our 2025 effective contracts in South Florida. In terms of further near-term capitation growth, we anticipate expansion of existing plan partnerships across 11 additional counties for Medicare Advantage members in Q3, which will expand our TOI clinic and MSO network to cover effectively the entire Florida market to serve delegated capitation agreements across multiple health plans. This next phase of expansion encompassing Q3 will expand our total MA lives under delegated capitation arrangements to approximately 200,000 total lives across 25 total counties. In addition to the capitated revenue associated with these new patients, this expansion is also expected to be a meaningful tailwind to our Part B pharmacy business as we capture the prescription volume, which will deliver faster, more convenient fills to our patients and value outside of capitation to our payor partners. To effectively support these important patient populations, we anticipate opening 7 new TOI clinics over the remainder of the year to ensure we are delivering the high-quality coordinated care that our patients deserve, and we will also add meaningfully to our contracted provider footprint across the state. As I mentioned in our last call, we are preparing to launch our proprietary provider portal this summer, and I'm excited to share more detail on this important initiative. We see 2 primary benefits of the TOI portal. First, it is designed to further strengthen contracted provider engagement and drive continued adherence to our clinical pathways and quality initiatives. Pathway adherence is a meaningful lever for MLR performance, and we believe this tool will be an important driver of ongoing improvement. Second, over time, we intend to use the portal to provide access to ancillary services, including Part D dispensing, clinical trials and care navigation, all key components of our integrated care strategy and key profitability levers, as we grow. There may also be an opportunity to pass on savings from our ancillary services to MSO providers, which will further drive engagement. Our Specialty Pharmacy business delivered an exceptional quarter and continues to be one of the strongest growth drivers across the enterprise. We filled a record number of scripts in the first quarter with Specialty Pharmacy revenue up 78% year-over-year at $87.5 million for the quarter, delivering $16.8 million of gross profit. This growth is being driven by a combination of higher patient volumes, continued optimization of pharmacy workflows across our network as well as ongoing efforts to reduce avoidable leakage to outside pharmacies. Gross margin in our Specialty Pharmacy business also came in higher than anticipated in the quarter at 19.2%, driven primarily by efforts in TOI's procurement function to manage drug pricing strategy and capitalize on our developed central clinical infrastructure via formulary pathways within the pharmacy. This is an area where we continue to see the benefit of our scale and distributor relationships, which will only be further enhanced as we grow. We are also working to expand pharmacy access in Florida to our delegated network members, which we believe broadens our ability to capture both Part B and D scripts from our delegated population. We expect this to be available in the second half of this year and view it as an incremental opportunity on top of our core Part B dispensing strategy, not contemplated in our annual revenue guidance. We continue to make meaningful progress on our AI-enabled operational initiatives this quarter. As a reminder, last year, we launched 3 AI integration efforts focused on revenue cycle management, prior authorization services and our patient call center. I'm pleased to report that we remain on track to achieve the $2 million in operating expense savings we outlined for 2026. These initiatives are not just delivering cost efficiencies, they are also improving the experience for our patients, providers and administrative teams, and we expect to build on them as we continue to scale. Finally, I'm pleased to welcome Minh Merchant to the Executive team as TOI's new Chief Legal Officer. Minh will oversee all legal, compliance, regulatory and privacy matters as we continue to scale the platform. As a company that is expanding its managed care footprint, delegated arrangements and operational complexity, having a seasoned legal and compliance leader at the table is critical. Minh is a great addition, and we look forward to the contribution she will make as we continue to grow and strengthen the Executive team. In summary, we are off to a strong start in 2026. Revenue growth of 41%, record pharmacy performance, profitability in Florida and a growing pipeline of capitated lives, gives us confidence that the momentum we built throughout 2025 is continuing into the new year. As we look ahead, our focus remains on operational execution and quality patient care, scaling our delegated capitation model, deepening payor partnerships and continuing to invest in the technology and operational capabilities that will drive sustainable profitability over the long term. With that, I'll turn the call over to Rob to review the financials in more detail. Rob? Rob Carter: Thanks, Dan, and good afternoon, everyone. I want to echo Dan's comments on the continued momentum we're building across the business as we progress through 2026. On the call today, I will review our first quarter financial results, provide an update on the balance sheet and liquidity and close with our updated guidance and outlook. Turning to financial performance. Total revenue for the first quarter was $147.4 million compared to $104.4 million in the prior year period, representing 41.2% year-over-year growth, a continuation of the strong momentum we have been building. Patient services revenue, which includes both our capitated and fee-for-service arrangements, was $59.1 million, representing 40.1% of total revenue and an 11.3% year-over-year increase. Within patient services, capitated revenue grew 54% year-over-year to $26.9 million, driven by new market momentum and the continued ramp of our delegated arrangements in Florida. Fee-for-service was $32.2 million, down approximately 10% year-over-year despite increasing visit volumes, reflecting the impact of mix driven by active drug formulary management, more conservative reserves against collections and modest pricing pressure in the IV drug channel. Capitation now represents approximately 45.6% of patient services revenue, up from roughly 33% a year ago, underscoring the ongoing shift in our revenue mix toward value-based care. Specialty Pharmacy revenue was $87.5 million, representing 59.4% of total revenue and growing 77.6% year-over-year. This was driven by a 103% increase in the number of prescription fills, reflecting the continued strength in fill rates as we bring new capitated lives onto the platform, partly offset by approximately a 12% decrease in average revenue per fill as our mix continues to evolve. Gross profit for the first quarter was $23.3 million compared to $17.2 million in the first quarter of 2025, reflecting continued top line expansion across both segments. Overall, gross margin was 15.8% compared to 16.5% in the prior year. The roughly 80 basis point decline is primarily the result of a nonrecurring rebate we recognized in the first quarter of last year as well as the natively lower margin profile of the delegated business as it increases as a proportion of TOI revenue. Patient services gross profit was $5.7 million compared to $6 million in the first quarter of 2025. Patient services gross margin was 9.7% compared to 11.3% a year ago, a decrease of approximately 163 basis points. The year-over-year decline is primarily the result of new ramping delegated contracts and our aforementioned conservative fee-for-service reserve approach. Specialty Pharmacy gross profit was $16.8 million, growing 78.1% year-over-year from $9.4 million in the prior year period. Gross margin was essentially flat at 19.2% versus 19.1% a year ago, evidencing TOI's ability to maintain unit economics as the pharmacy scales its distribution and adapts to an evolving pricing environment, including the phase-in of the Inflation Reduction Act. Our expanded utilization management program, which we refer to as TOI Pathways, now covers our entire drug portfolio, including the pharmacy versus historically only our Part B drugs, which continues to support margin stability, and we see further opportunity in this area as we increase scale. Turning to operating expenses. Total SG&A for the first quarter was $28.2 million or 19.1% of total revenue compared to $25.4 million or 24.3% of revenue in the same period a year ago. That represents approximately a 520 basis point improvement year-over-year, reflecting continued cost discipline and the operating leverage inherent in our model as we continue to scale. We see further leverage ahead as we scale and are planning to launch AI pilots around prior authorization optimization and a next-generation call center later this year. Adjusted EBITDA for the first quarter was a loss of $2.4 million, favorable to a loss of $5.1 million a year ago. As we noted on our call last quarter, Q1 is seasonally our most challenging period. Deductible resets and annual drug cost increases create natural headwinds that take time to work through. We are pleased with the year-over-year improvement and remain confident in delivering positive adjusted EBITDA for the full year, driven by the continued ramp of our Florida delegated arrangements, our growing Specialty Pharmacy platform and our continued cost discipline and push towards AI and automation in our central operations. We ended the quarter with $30.3 million in cash and cash equivalents compared to $33.6 million at year-end 2025. Our senior secured convertible note principal outstanding was $85.9 million, unchanged from year-end with a maturity date of August 9, 2027. I want to note that we are in late-stage discussions regarding the refinance of the notes and expect to provide an update during the second quarter. Operating cash flow for the quarter was negative $2.3 million compared to negative $5 million in the first quarter of 2025, reflective of the operating losses during each of those respective periods. Turning to guidance. We are reiterating our full year 2026 outlook for revenue, gross profit and adjusted EBITDA and are raising our free cash flow outlook to reflect favorable terms from vendor renegotiations as we continue to realize the benefits of our scale. For the full year, we expect revenue of $630 million to $650 million with approximately $150 million of capitated revenue, gross profit of $97 million to $107 million, adjusted EBITDA of $0 to positive $9 million and free cash flow is now in the range of positive $5 million to $15 million compared to our previous outlook of a loss of $15 million to positive $5 million. For the second quarter, we anticipate adjusted EBITDA in the range of a loss of $1 million to positive $1 million, reflecting seasonal improvement as deductibles are satisfied and the continued ramp of our Florida delegated lives. We expect momentum to build through the remainder of the year and remain confident in our commitment to full year positive adjusted EBITDA. With that, I'll turn the call over to Dan for his closing remarks. Dan? Daniel Virnich: Thank you, Rob, and thank you to everyone for your continued interest in the world-class community oncology solution we are building at TOI. I'm pleased to reaffirm our revenue and EBITDA guidance for the year as well as meaningful improvements in free cash flow. Our initiatives on creating a world-class provider portal and using technology to drive OpEx efficiencies will continue to drive our story as a leader in high-quality coordinated oncology care while delivering profitability for shareholders. Before opening the call to questions, I want to thank our patients for putting their trust in our ability to deliver high-quality care and to thank our physicians, clinicians and employees across The Oncology Institute. Their unwavering focus on delivering high-quality oncology care in the community is what continues to drive the progress we are seeing across the business. With that, I'll turn the call back to the operator for questions. Operator? Operator: [Operator Instructions] We'll take our first question from David Larsen with BTIG. David Larsen: Congratulations on another great quarter. Can you talk a little bit about your delegated risk arrangements in Florida? Did I hear you correctly when I -- I think I heard you say you now cover the entire state. And then just any color around risk, like the trend, the medical expense trend, how it's performing relative to expectations? And I think I heard you say that you're profitable in Florida? Daniel Virnich: Dave, thanks for the great questions. Regarding the first question, yes, we will be network adequate across 25 counties by the start of Q3 of this year, so July 1. That coincides with the expansion of multiple health plan agreements, which in total encompass about 200,000 MA lives across those counties in the delegated capitation model. The MLR performance on the delegated capitation book of business, which we mentioned in the earnings call for the 2025 cohort, is performing slightly better than our target MLR of 85%, which is a great data point. And we'll continue to update that as these additional lives enter the risk cohort. And then yes, on a 4-wall EBITDA basis, that Florida market is now profitable due to all this growth. David Larsen: Daniel, I didn't quite hear the MLR percent. Did you say it was 85%, slightly better than 85%? Daniel Virnich: That's correct. Yes. David Larsen: Okay. And then like Evolent Health, for example, I think this morning reported an MLR of 93%. What, in your view, causes such a significant delta? So why are you performing so much better than them in your opinion, at a high level without obviously having access to their data? Daniel Virnich: Yes. I mean I can't really speak to exactly why they would be at our level, but there is obviously differences in the care delivery model with us having a hybrid employed and network care delivery approach and kind of very tight control over care delivery and patient experience in our employed clinics. I think that would be definitely one aspect of it as well as the high engagement we're seeing on the network providers through our portal and pathway integration. David Larsen: And then in the delegated model, are you bearing risk for Part D? And can you push those delegated lives through your own specialty pharmacy? And if you don't bear risk, I would imagine that would be a benefit to your pharmacy? Daniel Virnich: Yes, that's exactly right. Yes, the only take risk on Part B, as in boy, Part D as in dog, is fee-for-service revenue at that a little bit over 19% margin that we called out, which flows through our pharmacies and dispensaries. And those bills apply to both capitated as well as noncapitated lives. So it's an additional economic benefit to the capitated members coming to us for care. There is the additional added benefit of us having a pharmacy in that 4 practices in the network that deliver Part B, as in boy, medications, which are part of our risk, we can deliver those at our pricing, which is beneficial given our scale. David Larsen: Just one more. Sorry to keep asking questions, I'll hop back in the queue, but just one more. Did I hear you say you were talking to additional health plans in the Florida market beyond Elevance? Daniel Virnich: Yes. We're talking to additional health plans in Florida as well as other markets as well for the delegated capitation model. So we'll have additional updates for that in the next earnings call, but we are seeing a lot of opportunity and momentum around that specific delegated capitation model kind of across markets. David Larsen: Okay. Congrats on the great quarter. Operator: We'll take our next question from Matthew Shea with Needham. Matthew Shea: Nice start to the year guys. Maybe first on dispensary, really, really impressive growth there and it sounds like volume driven by a mix of membership and continued attachment rates. I guess any additional color there? Membership seems pretty self-explanatory, but maybe on the attachment rate side, are these coming in ahead of expectations? And if so, my understanding is this is mostly driven by provider education. So is there anything you would call out on the provider education side that's been notable in helping drive this growth? Rob Carter: Matt, it's Rob. Yes, attachment rate has exceeded our expectations in the year. The workflow changes that we implemented last year, I think they're continuing to pay dividends. And so that work progresses. I think as you look at the rest of the year, I think you can expect some improvement quarter-over-quarter as we continue to refine those workflows and as additional value-based lives come on the platform. Matthew Shea: Okay. Got it. That's helpful. And then maybe on the proprietary network portal, good to hear that, that remains on track for the Q2 launch. But maybe as we think about the pacing of the rollout, I would assume that will be sort of a provider-by-provider, market-by-market. But maybe how should we think about the cadence of that? And where are you hoping to get to in terms of provider coverage by year-end? And then given it can strengthen the provider engagement and drive adherence to the clinical pathway, it seems like a nice lever to drive MLR. So curious if you've built in any financial benefits to the 2026 guide or if we should think about that as more of a 2027 event? Rob Carter: Yes, absolutely. So when we roll out the portal, which we're anticipating in Q3, that's going to be immediately accessible to 100% of the nonemployed providers across our delegated contract network. So basically, all of Florida will have access to it in the MSO side of our business. We already see good adherence to pathways or care pathways for Part B medications by those providers, but I think this will drive additional adherence because it will just create additional visibility and control over those providers to access our formulary and pathways. We -- As we called out in the earnings call, the additional, I guess, P&L upside related to that portal, which we anticipate will happen this year, but is not contemplated in our current guidance, would be related to Part D fills. Recall that our current Part D fills are all from our employed physician base. There are no Part D fills flowing through to our MSO providers through implementation of e-prescribing in the portal and Part D formulary visibility. We hope to catch some Part D growth as well through our MSO network in the second half of this year, but we haven't specifically guided to that or included in the forecast given timing as well as lack of visibility into attach rate on that. Matthew Shea: Okay. Got it. Okay. That's super helpful clarification that the patient portal can help with that Part D. Okay. And then maybe last one for me before I jump back in the queue. So the 200,000 lives target in Florida for July 1, I guess, thinking back to the last earnings call or sort of where I had you guys in Q1, I had 70,000 lives in the Elevance partnership and then 22,000 from Humana and CarePlus, so call it, 90,000 in change. Maybe help me bridge the difference from there to 200,000? Is that all Elevance? It sounded like maybe you alluded to some other payers in there as well? Just kind of trying to get a sense of ultimately what sort of wins drove that expansion? Daniel Virnich: Yes. So we've opted not to disclose the specific health plans as additional lives are coming through, but it's effectively an incremental 130,000 MA lives with major carriers in Florida. Operator: We'll take our next question from Yuan Zhi with B. Riley. Yuan Zhi: Congrats on a strong quarter. Maybe a question to Rob first. Can you give me more color on the substantial $20 million free cash flow improvement since the adjusted EBITDA and the gross margin guidance didn't change? Maybe specifically comment on the timing of this cash flow improvement? Rob Carter: Yes. Thanks for the question. So this is the direct result of negotiations that have been underway now for several months with some key suppliers, in particular, on the drug side of things. This is an advantage that we have as we continue to grow and scale. We have opportunities for leverage, and we're able to take advantage of that in a very, very meaningful way. And so very excited about the outlook there. Yuan Zhi: And on the Florida expansion, do you right now have the -- have your fully owned clinics ready to enter all these 25 counties in Florida under the dedicated model? Daniel Virnich: Yes, it's Dan. That is underway right now. We need to see by the time we go live with those additional lives that we'll have our clinics in place to adhere to our sort of ratio of employed clinics, MSO providers in the additional counties where we will be taking risk. Yuan Zhi: Got it. And one last question on the Specialty Pharmacy. Can you clarify, are you able to dispense drugs outside of oncology, considering this patient may have other comorbidity or disease that may need oral drug? Daniel Virnich: Yes. So at this time, our Specialty Pharmacy really focuses on oncology-specific medications, both oncolytics as well as medications that support chemotherapy pathways or oncolytic pathways exclusively. We don't prescribe for non-oncology conditions or non-hematology conditions. Operator: [Operator Instructions] Our next question comes from Robert LeBoyer with NOBLE Capital Markets. Robert LeBoyer: Congratulations on another nice quarter. My question has to do with the CMS enhancing oncology model, and you mentioned saving $2 million in Medicare spending as part of the program during one of the periods. Could you just elaborate on what the model measures and put the $2 million in perspective in terms of spending per patient, spending on the total, maybe tie in the medical loss ratios and if there's any information on how that compares with other providers, that would be helpful, too? Daniel Virnich: Robert, great question. So that -- the savings performance was in periods 2 and 3 of the enhancing oncology model, which, as I think most people know is the next iteration of the oncology care model that CMMI had for a number of years. It's an episodic total cost of care risk model. So a little bit different than Part B capitation, although the principles are the same, adherence to value-based therapeutics and then implementation of our high-value cancer care program, which is specifically designed for Part A avoidance, which is part of the risk in the EOM model. We don't have numbers off the top of our head in terms of MLR performance or total risk pool for that cohort. We can certainly follow up on that. So we'll have a set absolute savings amount at this time. Robert LeBoyer: Okay. Great. And in terms of the portal that you mentioned, are there any particular things that you could point to or discuss in terms of how that would change the providers' actions or whether that would save money, keep them on track, monitor what they're doing or just exactly how that would work? Daniel Virnich: Yes, absolutely. The portal is meant to be a centralized hub for our utilization management efforts. So all network providers that are helping serve our capitated partnerships in terms of patient care will be submitting their prior authorizations for care into that portal to get a UM decision made by our medical directors. Once that decision is made, then that authorization is approved or there's a peer-to-peer or a change request. It also offers a centralized hub where we've got a high degree of visibility into all of our pathways to help drive additional formulary adherence. And then as mentioned, it's got the added benefit of being a path to get network providers to engage in ancillary services like pharmacy and clinical trials. Operator: We'll take a follow-up question from Matthew Shea with Needham. Matthew Shea: Appreciate the follow-up. Maybe, Dan, thinking longer term on AI and beyond 2026, sort of last quarter, you noted you're just starting to scratch the surface on use cases and capabilities of Agentic AI and that there were a number of sort of integration opportunities out into the future. So maybe as we think about you moving beyond those 3 initial buckets that you've highlighted for 2026, are there any other potential areas that are top of mind? And as we think about you maybe going after some of those and looking out to the 2028 targets, is there anything contemplated in those targets in terms of AI efficiencies beyond sort of the initial $2 million that you've outlined for 2026? Rob Carter: Yes. So to hit the second question first, no, our long-range kind of forecast that we issued in January did not contemplate additional AI efficiencies, so very conservative. The $2 million that we forecast into 2026 is really just scratching the surface on integration into those 3 core functions: call center; RCM; and prior auth. I mean it's moving quickly in terms of the capabilities of Agentic AI in all 3 of those functions. So I do believe there will be substantial opportunity to expand upon those savings and drive additional OpEx efficiencies over the next 2 to 3 years. Additional use cases at this point, we do believe there's a good use case in the care navigation side of what we do as well with our high-value cancer care program. It's kind of a -- because it's highly protocolized, it's perfectly set up for that use case, which would obviously drive efficiencies in terms of labor costs to implement and scale that program over patients that are appropriate. And I'm sure there's many others. But I'd say just even the 3 core use cases that we have going right now, we are far from maximizing the savings and sort of efficiency opportunity amongst those 3. Operator: Thank you. At this time, there are no further questions in queue. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good day, everyone. My name is Dannie, and I will be your conference operator today. At this time, I would like to welcome you to the Grindr First Quarter 2026 Earnings Call. [Operator Instructions] At this time, I would like to turn the call over to Tolu Adeofe, Director of Investor Relations. Thank you. Tolu Adeofe: Hello, and welcome to the Grindr Earnings Call for the First Quarter 2026. Today's call will be led by Grindr's CEO, George Arison; and CFO, John North. They will make a few brief remarks, and then we'll open it up for questions. Please note, Grindr released its shareholder letter this afternoon, and this is available on the SEC's website and Grindr's Investor page at investors.grindr.com. Before we begin, I will remind everyone that during this call, we may discuss our outlook, future performance and future prospects. You should not rely on forward-looking statements as predictions of future events. These forward-looking statements are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. Some of the risks that could cause our actual results to differ from views expressed in our forward-looking statements have been set forth in our earnings release and our periodic reports filed with the SEC, including our annual report on Form 10-K for the year ended December 31, 2025, or any subsequently filed quarterly reports. During today's call, we will also present both GAAP and non-GAAP financial measures. Additional disclosures regarding non-GAAP measures, including a reconciliation of these non-GAAP financial measures to their most closely comparable GAAP financial measure are included in the earnings release we issued today, which has been posted on the Investor Relations page of Grindr's website and in Grindr's filings with the SEC. With that, I'll turn it over to George. George Arison: Thanks, Tolu, and hello, everyone. We delivered exceptional results in Q1 2026. Revenue grew 38% year-over-year with a net income margin of 21% and adjusted EBITDA margin of 45%. We have now shown repeatedly that when we improve the product, expand the value users get from Grindr and monetize thoughtfully, the business responds. Given our Q1 performance and what we can see today, we are raising our full year outlook and now expect at least $535 million in revenue and at least $227 million in adjusted EBITDA for 2026. I will focus on a few highlights. And as always, I encourage you to read our shareholder letter, which goes into significantly more details on these topics as well as a number of others. Our focus in 2026 is clear, making Grindr a more useful day-to-day, more personalized and more valuable across a broader range of user needs and intentions. That means continued work in the core app, including Right Now, Maps, Health Center, significant rearchitecture and broader deployment of gAI. We're also driving towards the global rollout of Edge, our new premium tier. Built around our gAI capabilities, Edge is designed for power users who wants the most advanced experience current technology can offer. Based on user testing, we expect that Edge will command a significant premium to our current subscription offerings and anticipate that it should be our largest driver of revenue growth in 2027. As our offerings expand, Grindr's position in the market is broadening as well. We are staying true to and strengthening our core use case with Right Now while also becoming a broader and more durable category leader, serving one of the most culturally influential communities in the world across many use cases. That is what the Global Gayborhood in Your Pocket means, now moving away from what is core to Grindr and to gay life, but building outward from it into a product, brand and platform that play a larger role in the lives of our users. Over time, we aspire to be not just a known brand, but a loved one, with greater cultural relevance, broader utility and the ability to expand into adjacent categories where our relationship with users gives us the unique right to win. Our recent Madonna partnership is a strong example of that strategy in action. It is a major in-app activation ahead of the global release of our new album, Confessions on a Dance Floor II, and exemplifies the content partnerships component of our product and business. It also is reflective of Grindr's position and culture. Our users do not just consume culture, they help shape what breaks and what matters. As we introduce more elevated experiences, Grindr is also becoming a more premium platform, one that's able to attract iconic partners and create new forms of value that strengthens the brand and expands our positioning well beyond that of a narrow-use-case app. We also continue to build our advertising platform as a meaningful driver of long-term growth. A strong free product remains essential to the health of our network. And this year, we are taking steps to improve the free experience meaningfully, including reducing certain ad triggers, expanding rewards-based advertising and rearchitecting the front end of our iOS and Android apps. Activations, reactivations and overall engagement remains strong, and retention is improving, notwithstanding pricing changes. These strong engagement results are clear indicators that the product quality is getting better. While our MAU growth remains strong, in a small number of international markets, we are also seeing MAU headwinds from 2 types of government actions. First, certain new age-assurance rules lead some adults, including those particularly focused on privacy to drop out of the account sign-up or login flow prior to even entering the age assurance process. Separately, and far more troubling for our users, we face real pressure in certain countries with the repressive policies against members of our community like Malaysia and Indonesia. We estimate that in total, MAU would have grown by an average of 400,000 more in 2026 than the current full year trajectory if we were not facing these 2 distinct factors. This is not financially material to us for reasons discussed in my letter. We are continuing to strengthen Grindr for the long term on behalf of shareholders, including nominating 3 new independent directors for election at our annual meeting, and as John will discuss, beginning execution under our expanded share repurchase program. Overall, I could not be happier with our fantastic start to 2026. The team is executing exceptionally well across technology, product, brand and the business more broadly. And I'm very proud of and grateful for their hardcore approach to everything we do. Because of their dedication, we believe Grindr is set up to deliver strong growth this year and next, and we are excited for what lies ahead. With that, I'll turn it over to John to walk through the results in more detail. John North: Thanks, George, and hello, everyone. Q1 was strong across the board, as George highlighted. Revenue grew 38% to $130 million. Adjusted EBITDA was $58 million or a margin of 45%. The performance was driven by strength in core app revenue, including our pricing changes, but also better conversion and retention as well as ads. App-based revenue grew 33% year-over-year and ad revenue was up 68%. In ads, we have our first big year-long direct ad campaign, which will take our ads revenue up into the mid-to-high teens as a percentage of total revenue for 2026. That's netted against moderation in third-party ad loads that we began implementing in the first quarter in connection with our priorities around user experience and ecosystem health. In 2027, we expect ads as a percentage of total revenue to normalize back to the 15% range that we've historically delivered. Adjusted EBITDA grew 44% to $58 million or a margin of 45%. The strong result is an outcome of both the revenue outperformance and the timing of planned expenses. In our March call, we communicated that we planned higher investments this year in support of our priorities for the business. While these investments began to flow through the P&L in the first quarter, we expect to see that pick up in the second quarter as we execute on planned product and tech development initiatives as well as marketing in support of the brand initiatives George highlighted. Turning now to share repurchase activity. This is detailed in our shareholder letter, but I'll call out that we retired 8.3 million shares of our common stock in the first quarter. Across December and the first quarter, we've deployed approximately $140 million in authorized repurchases. We've used a variety of mechanisms, including prepaid written put options, an accelerated share repurchase, and forward repurchase transactions so that the capital deployed will -- so far will settle over time through the third quarter of this year. We have $350 million remaining in our current buyback authorization. Now for our guidance. We are raising our 2026 outlook to include revenue of at least $535 million and adjusted EBITDA of $227 million, a $10 million increase from our February outlook. The increase in estimated revenue reflects stronger payer conversion, which is continuing into the second quarter and the lift from the brand campaign. Keep in mind that we expect our growth rates will moderate in the second half of this year, in particular, in the fourth quarter as we anniversary the rollout of our pricing increases. A higher adjusted EBITDA outlook reflects the stronger revenue picture and continued strong AI leverage in engineering, offset somewhat by the planned investments we discussed, which are starting to increase in the second quarter. Overall, we are excited about the strength of the business, and we'll manage with discipline as we execute on our plans for the year as we always do. And with that, operator, let's open up the call for questions. Operator: Our first question today comes from Nathan Feather at Morgan Stanley. Nathaniel Feather: Congrats on the strong quarter here. Can you provide a little bit more color on what you're seeing in the testing so far for Edge, both in terms of consumer receptivity to the individual features along with the price receptivity? And then even though it's going to be the major driver for 2027, I guess, how should we think about the rollout timing here? George Arison: Nathan, good to talk to you. Great question. We have a lot of data on Edge from the testing that we've done. So I'll split that into 2 things. On the product side, a bunch of the features that are all in Edge have actually been tested for quite some time in 2025. And so we feel really confident about the product experience that we've created and about the features that we've built and that users really will like them, and it will be a really great thing for the product overall. Where we are really focused on now is pricing. So we've done one pretty big price test in an English-speaking country, not in the United States and got really good results, which tell us that Edge will be priced at a significant premium to what we offer today, incrementally more. And that gives us a lot of confidence that Edge is a very good home run. And what we're now spending time on is determining whether Edge can be a grand slam with a higher price point. But the key to that is having better clarity around how we want to position it in the product and kind of the marketing that we want to do around it. Edge is not designed as a product for mass consumption. It is built for a small number of power users on Grindr. I think someone's asked me in the past, and I said anywhere between 0.5% to 1 percentage point of our MAU being in Edge after several years, I would view as a really powerful outcome. And so we're now looking at that kind of marketing piece of it and how to position it into the market and how to then price it based on the value that users are getting. The value equation is really the critical thing for us. So we feel really good about where Edge is headed. We are going to put another test into the market later this Spring or perhaps in June. And then based on those results, we'll have a better sense on when we want to launch it. For us, the really critical thing is to have it be ready for 2027. That would imply late 2026 or early 2027 launch. But we're doing so well this year and everything is firing on such kind of -- in such a strong way that there's no rush to put Edge into the market. We think that getting it right and making sure that it can be as big as it can be and unleashing its full potential is where we would win the best. Nathaniel Feather: Great. That's helpful. And then just one more for me. 1Q revenue growth, really strong, but also kind of tracking well ahead of the full year guidance. John, can you give me a sense of the shape of revenue growth over the course of the year? And then what are the major puts or takes that could lead revenue growth in the back half to be a little bit higher than we're expecting here? John North: Yes, Nathan, thanks for the question. So I'd break it into a few, I guess, topical comments to help frame it for you, and we alluded to this in the prepared remarks. We've certainly got a benefit from the pricing increases that we introduced at the end of last year. That was planned, that was baked in our forecast. That was in the numbers we gave you when we introduced this year. I think we have a little bit of upside there in the quarter because we didn't see the typical churn to the degree that we would with pricing increases happening. So there was a little bit of a benefit there. The direct ads business we talked about has that large benefit this year with the campaign with one of our key partners. And that came in a little -- I would say, a little faster than we expected in the first part of the year. And so there's going to be an impact in the back half of the year as a result. And those are the 2 kind of big drivers that push things ahead for us in the first quarter and led us to be confident enough to raise what our outlook was for the year. But on the back end of that, it's exactly what you flagged, which is that we're going to see a deceleration in the third and the fourth quarter. Some of that's a function of having a really good fourth quarter last year where we outperformed. So it's a tougher comp. And some of it's really just the product cadence and how things are going to launch this year, which is exactly what we're expecting. We did also mention that we're investing in the future. So our margin is an important thing to talk about as well. We're expecting that to be impacted through the year because we're bringing on people, and we're investing in products and things that are not revenue generating that are going to set up 2027 and beyond. And so that's all kind of what's in the thinking and happy to dive into that in more detail with you offline if we can be more helpful from a modeling perspective, but we are anticipating a bit of a deceleration in the third and particularly the fourth quarter to get to that implied full year number, which is exactly what we're anticipating. And George, maybe can talk a little bit more about some of the specifics around the product side. George Arison: Yes. So if you look at Grind's history over the last 5 years, usually a step change in revenue, kind of new revenue has come from something significant that we've launched on the product side because we are a product-driven kind of revenue company. So if you look at, say 2021, we launched more profiles that led to a big step change in revenue growth. In 2022, we launched Boost middle of the year that led to a big growth in revenue in 2022 and then in 2023. In 2024, we launched weekly pricing for Unlimited that drove growth in revenue. So for our business to continue to grow revenue in a significant way, we need to launch the next big thing kind of in a reasonable time frame. The last big thing we launched was the price change, which was a way for us to monetize the value that we have created for users over the last 2 to 4 years. And the results of that have been really strong. Churn is down, reactivations and activations are up, which is not what you'd expect to happen when you raise prices, but I think it speaks to the fact that we have created a ton of value in the product, in our paid tiers and users are recognizing that. So, given that we started the price increases in Q4, then for us to have another step change in revenue growth in Q4 of this year, we would need to launch some big product. That next big product is Edge. And as I spoke earlier, we feel very confident about how well Edge will do, but we might not launch it in Q4. And that would lead to deceleration in Q4 and then acceleration looking into 2027. And that year, obviously, is looking really good from that point of view as well. Operator: Our next question comes from Andrew Boone at Citizens. Andrew Boone: I would love to ask about 2 things, one near term and then maybe one more that's strategic. George, how do we think about Match and Sniffies in the competitive environment now that Sniffies may have a larger balance sheet and funding behind it? And then as we think about your platform evolution here, it's really clear that there's a bigger picture strategic view. Can you bring us more into financial terms for us and talk about the benefit that we should expect in terms of shareholders from the broadening of the platform and what that could mean from a financial lens? George Arison: Great. Thanks for the question. So on Sniffies, I'll start with a congratulations. We've gotten to know the Sniffies guys over the last couple of years. I've spent time with Blake and his brother and I'm very happy for them. They were looking for liquidity, and I'm very glad that it happened in this powerful way. I'm also a little bit happy for Grindr because this investment really speaks to the work that we've done in getting the public market used to a company like Grindr. If you look at where we are today versus where we were 3.5 years ago, the world has fundamentally changed. And so I think our team has done a really fantastic job in letting people understand what Grindr is and how big the opportunity space here is. I don't know if people know, but about a decade ago, Match really wanted to buy Grindr. And the team was really behind it and they got blocked by the Board. So it's awesome that we're now past that and there was acceptance of investing in Sniffies. As far as the competition for us, we always pay attention to competition and Grindr had plenty of competition from the day, frankly, it started, right? Grindr was not the first digital gay product. Manhunt and Adam4Adam were by far the dominant platforms when Grindr launched. And ever since then, Grindr had competition. And so, we always pay attention to competition and it obviously matters. But from our perspective, what really matters is us being the product that people go to first in wallet and spend the most amount of time in and are most engaged with. And by every metric that we have internally, that has continued to be the case. And frankly, in some respects, it is accelerating. Like in the time period that I've been at Grindr, the amount of time that people spend on the app has only increased. And so, we feel really good about our position in the market and what we need to do on a go-forward basis. Sniffies is a different product, and it serves a very specific use case. So Sniffies entered the market when Craigslist eliminated personals out of concern for sex trafficking and that opened up this space for cruising for people who were using Craigslist before and was a very heavily used product. And that's the kind of space that Sniffies has captured. We obviously have a much broader set of use cases that really kind of offer users many different things. And so we feel we're in a really good place in that regard. And again, there's place for more than one product. We know people use more than one product and that's probably okay. So we are focused on executing our strategy, and we're speeding up, not slowing down. That's how I think about it. On your second question on the platform, when I joined Grindr and frankly, for the year before I joined Grindr when I was learning more about Grindr, the assumption I would hear from everybody was the best way for Grindr to make more revenue is to get more people to become payers. And there is logic to that, right? The Grindr was at sub-6% payer penetration and our peers in the straight category are at 15%, maybe even 20%. And so it would make sense that you could convert a lot more people to become payers. But our -- and we've done a bunch of that, right? We've gone from sub-6% to 8.5%-plus and that's with MAU growing pretty significantly. So if we had stayed static, we'd be over 10% payer penetration today. But ultimately, the free experience on Grindr is really, really critical. And that's the reason why everyone comes into the product on a regular basis as they become adults. And so, from our view, the better way to monetize on a go-forward basis is to create value-added experiences for people on a premium level. And hence, why we're building Edge and a bunch of other premium experiences inside the product. So from that perspective, creating a more upscale experience for our brand is something that will help a more elevated and a more premium experience in the product. And that will be the primary way in which we drive revenue growth in '27, '28 and beyond. By the way, none of this is new, like this is what we had set out to do when we talked about it in Investor Day. We're just executing on it at roughly the time line that we had expected we'd be doing. John North: And George, I'll just hop in. I mean on the longer-term margin question, that's really not the primary focus for us. There's certainly a world in which we could continue to turn levers within the business to improve the EBITDA margin, whether it's more payer conversion, whether it's getting more productivity out of people, whether it's figuring out direct payments, so we don't pay so much in fees to the App Store. There's things that can be done, but that's not been the primary focus. Growing the revenue base overall and diversifying the revenue base in different ways is where the focus is, and we're consciously investing and taking a view to the future, both this year and beyond, to continue to create the growth avenues for Grindr, which is more important to us. So I would much rather see an improving growth rate as opposed to an improving margin percentage. Operator: Our next question comes from Andrew Marok at Raymond James. Andrew Marok: Maybe first on the age-assurance issue. We've seen some other companies in the digital media ecosystem kind of have variable results with how they are impacted by age restrictions or age checks. So I guess what are some of the key learnings that you've seen in the geographies where they've been required so far? And how can they inform future potential implementations to kind of minimize the friction of engagement or sign up based on the particular concerns of the Grindr community? And then maybe second on advertising. Great to hear about the full year campaign. I guess, was there anything in particular that got this company to come on and make a big campaign? Or was it just kind of fortuitous timing and how the pipeline of those bigger deals might be? George Arison: Thanks for the questions. On age-assurance, I always want to start by saying Grindr is an 18-plus product. We don't want anybody under 18 using Grindr, and we are really strong proponents of App Store or phone-based age verification, and we've endorsed federal legislation that would mandate that at the national level, and we've supported legislation in California and Texas and Utah that's achieved that as well. And I think that's really, really important. I'm a dad and I don't want my 6.5-year-olds being on Grindr, and I don't want them touching Grindr until they're 18, and that's something we believe in really, really strongly. The approach that some of the countries have taken internationally at mandating age verification at the app level comes with a lot of challenges to the user. It means that a user has to validate their age in multiple apps, which obviously increases the risk that their information will come out. And we have a set of users -- because something is leaked, et cetera. And we have a set of users who are extremely privacy conscious. Oftentimes, there are people who are still in the closet, who are very, very discrete. And these adult users, and I want to be very clear, we're talking about adults, just simply choose to drop out of the process before they go through the age verification flow. We actually have a pretty good age verification flow. We use facial recognition to determine if you are of age first and only if that technology is unable to determine that you are over 18, do we then put you to a secondary flow where you have to show ID. But even that process alone gets some people to drop off, and these are adults, not people who are under-age. And so we think that the alternatives to that, which is the App Store or mobile device-based verification is a much better approach, and that's what we're going to keep advocating for. But obviously, we'll comply with laws as they happen. It has impacted MAU growth. To be very clear, MAU is still growing very nicely actually, but MAU would have grown by an amount larger than what it's going to grow this year if these rules were not in place in some of the countries. And I would expect more countries will adopt rules that are similar to this. Though again, we're going to continue advocating for App Store or device level verification. On advertising, so maybe to step back a little bit on the ads business overall before I answer the specific question. We've had incredible success with that business. We went from a roughly $30 million business in 2022 that was decelerating and frankly, didn't really have a path to grow to a business that, based on guidance that we've shown you, is going to be over $90 million this year. So that's tripling the business in a 4-year period, which I think the team deserves nothing but huge congratulations for that. And we've said at Investor Day, we want -- advertising is going to be kind of roughly the same percentage of revenue as it was in 2022, which is roughly 15%. That meant that the ad business had to grow faster than the core business. And again, it's achieved that. So I'm very, very proud of what the team has done. At the same time, where I've probably been most disappointed in my time at Grindr is that getting the direct ad business where brands come and work directly with us has not been as successful as, frankly, I would have liked it to be. We hear from brands a ton that they want to reach our type of audience that is tastemaking, that has high disposable income, et cetera, but they're not willing to put dollars to work on Grindr. And that's still work that we have to do from the brand perspective, on our brand. That's the work that we have do from a technology perspective and creating the technology that advertisers want us to have in the application to help them advertise as well as from a data perspective, like what are they actually getting in return. Grindr is a great place to advertise from the point of view of building your brand. It is not a direct response type of a channel because people are in a different mindset when they're on Grindr. They're not actually looking to kind of transact on something else when they're in the app. And so that obviously creates a special way of pitching the brand perspective of it. People are very used to buying direct response ads, but less so for what we offer. I'm still very bullish that over the long term, we will win in that direct advertising business, but I think it's going to take us a really long time. That doesn't mean that the ad business cannot grow. We expect the ad business to keep growing in the years to come and to stay at that 15% of total revenue baseline that we had in 2022 and that we've aimed to maintain. So there's still a ton of growth for the ad business. I think we'll continue to see a ton of positive results from Rewarded Video, which actually makes the user experience in the app better as well. So that's one of the things that we are seeing a lot of traction with. With this particular advertiser, we had been working on them for almost 2 years, and they had been advertising with us during that period of time as well. It's the same advertiser that had a big push in Q4 of 2024, you might remember, when we had a big uptick in revenue as a result of that. So we have a relationship with them. We're really happy that they're advertising, but I wouldn't expect something similar to repeat in 2026. Hopefully, we can create more opportunities for bigger direct advertising partners in 2027 -- sorry, in 2028 and beyond. Operator: Our final question today comes from Logan Whalley at TD Cowen. Logan Whalley: First, to ask about discrete mode and kind of how you think users will engage with that feature looking forward? Do you expect this kind of opens up a new use case with the app or maybe just changes how people engage with the app? And then, secondly, on your plans for incremental hiring in the middle of the year, where do you expect that headcount efforts will be directed towards within the business? George Arison: Great. Well, I'll take the first one, and then maybe John and I can split the second one. So on discrete mode, discrete is for Right Now specifically. So it's not a -- you can -- not to be discrete on the app overall. We already have a way for people to browse the grid without actually showing up on the grid if that's what they want and some people do want that. But this is for Right Now. What we heard from a lot of users who we surveyed or got feedback from was that they want to post in Right Now, but they don't want their posting in Right Now to be connected to their profile on Grindr because a lot of people have friendships on Grindr and for discretion reasons, they don't want to be telling everyone they know, "Hey, I'm posting in Right Now," which is perfectly reasonable. And so the discrete mode has enabled that capability where a person can post on Right Now, will receive messages from other people who are in Right Now or who are interested in Right Now. But you will not be able to see the connection to your regular profile and that way you kind of keep that discretion. So, that's something that people really wanted. I think it's going to be a good feature in making Right Now a better product for people who want that. But there's a ton that we're doing with Right Now that I'm not yet in a position to publicly talk about that I think will keep making that experience better and better for people. We have a very large percentage of branded users that use Right Now on a multi times a week basis. And so we're really happy with that, but we still think there's more that we can do to make it even better. When it comes to hiring, we definitely went into -- we've been behind on the number of people that we need for quite some time, right? I am known to run a very lean operation. Grindr has over $2.7 million in revenue per head at the end of last year. And so we felt that we need more people. And we had a fairly aggressive hiring plan for the year. We are probably -- we're doing very well on hiring, but I don't think we're going to end up hiring everyone that we had envisioned, and that's reflected in the EBITDA margin or in the EBITDA raise that we gave for the year in this release. One of the reasons why we won't probably hire everyone is because how we work is fundamentally changing. We've said in the past that our engineers are self-reporting that they are 1.5x more productive than they were 9 months ago. We now have teams of -- on the product team that are being -- small teams of 4 people are able to produce as much work in a week as teams of 10 or 20 people would have previously produced in the course of a month. And that's all because of AI. The roles of engineer, product manager, designer, data scientists are all kind of collapsing in that now they are all doing all parts of that work, meaning a designer can code and function as a product manager or a product manager can code and also do design. And so we're terraforming this business to be an AI-native business. It's is really changing how we work and the amount of productivity you're getting from the teams. And as a result, we -- given how lean we are, we don't have the same problems that a lot of other companies have. But we do -- and we still need more people in terms of hiring, but we do want to be judicious in how we hire and who we bring on board because we want them to be much more AI native to fit in this new mode of working that we are now evolving inside the company. I don't know, John, if you want to add anything to that. John North: I would just say the 39% to 42% EBITDA margin is healthy. As we talked about on an earlier question, even as the CFO, if you told me I could grow revenue or I could grow margin, I would choose revenue right now. I think that margin optimization isn't the most important thing. To George's point, the guidance and the plan that we had in place contemplated hiring and investing in the future and that it was going to impact margin as a result, which it did. But also to his point, we've been able to increase that because the plan has changed as we've evolved. And I do also echo the sentiment that we're investing in the business in other places, which would include like investing in marketing efforts and spending more money there. And you see us doing more, I think, culturally-relevant events like the White House Correspondents' Dinne or partnering with Madonna on our album launch. And those are things we're doing that are marketing investments outside of attracting users to the app. They're really about improving our cultural relevance and what we bring to the community and to the user base overall. And we've been working our way through that, testing those things. And then I think as we've achieved success, in some of these events and these touch points that become these cultural flashes, we have more confidence to invest some more money in marketing because it's working. And so those are the kind of things we're thinking about and balancing. And certainly, there's a case to be made to just optimize for margin all the time, but that really doesn't give us the trajectory to execute on the vision that George has laid out to really continue to round out the app in many different ways and to expand the number of modalities in which we can reach revenue and reach users. Operator: That concludes today's call. Thank you for joining. You may now disconnect.
Operator: Greetings, and welcome to the Covista Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to Jeremy Cohen, Vice President, Investor Relations. Thank you. You may go ahead. Jeremy Cohen: Good afternoon, and welcome to Covista's Earnings Call for the Fiscal Year 2026 Third Quarter Results. On the call with me today are Steve Beard, Chairman and Chief Executive Officer of Covista; and Bob Phelan, Chief Financial Officer. Before I hand you over to Steve, I will take you through the legal safe harbor and cautionary declarations. Certain statements and projections of future results made in this presentation constitute forward-looking statements that are based on our current market, competitive and regulatory expectations and are subject to risks and uncertainties that could cause actual results to vary materially. We undertake no obligation to update publicly any forward-looking statement after this presentation, whether as a result of new information, future events, changes in assumptions or otherwise. Please see our latest Form 10-K and Form 10-Q for a discussion of risk factors as they relate to forward-looking statements. In today's presentation, we will use certain non-GAAP financial measures. And we refer you to the appendix in the presentation materials available on our Investor Relations website for reconciliations to the most directly comparable GAAP financial measures and related information. You will find a link to the webcast on our Investor Relations website at investors.covista.com. After this call, the presentation and webcast will be archived on the website for 30 days. I will now hand you over to Steve. Stephen Beard: Thanks, Jeremy. Good afternoon, everyone, and thank you for joining us. This is our first earnings call as Covista. The name reflects what we've been building, a single platform for health care workforce development on a national scale, backed by the performance you're seeing in this quarter's results. The structural backdrop for our business hasn't changed and remains highly durable. There are roughly 700,000 health care jobs posted every month in the U.S. and only 306,000 unemployed health care workers to fill them. That's a patient care problem, not a staffing problem, and it's exactly what we were built to solve. 5 institutions, more than 24,000 health care graduates a year, deep clinical relationships and a footprint that reaches communities most under strain. And we're increasingly connecting our market-leading capacity to produce health care workers directly to employers through programs that fund education, deliver clinical experience and create hiring pathways. No one else does this at our scale. Three things defined this quarter. First, we surpassed 100,000 students, achieved our 11th consecutive quarter of total enrollment growth and delivered record enrollment at both Chamberlain and Walden. Second, Chamberlain returned to positive total enrollment growth ahead of our expectations. The operating changes that we committed to are, in fact, working. Third, the strength of our results gives us the confidence to raise both revenue and adjusted EPS guidance for the year. Total enrollment grew 6.8% in the quarter against near double-digit comparables a year ago. Walden has been compounding off an extraordinary base, and Chamberlain spent this fiscal year retooling its marketing and enrollment model. As Chamberlain's recovery builds and Walden's persistence efforts continue to compound, the underlying earnings power of the platform is strengthening in really exciting ways. With respect to Chamberlain, last fall, we were direct with you. The market opportunity was solid, but our execution was not. We called out 2 issues: marketing effectiveness and funnel conversion. In response, we localized our marketing in key metropolitan areas, simplified the application experience, rebuilt the scholarship process and upgraded talent in the critical roles across this activity set. We said we'd do these things, and we did. The operating signals are now telling the story. Application volumes have improved sharply. Funnel conversion is up. Total enrollment turned positive ahead of plan, and we expect Q4 to look like Q3 with momentum building into the fall enrollment cycle. We're not declaring victory on a single quarter of 0.5% enrollment growth, but we are telling you that the operating model is working and the trajectory ahead is stronger than the trailing numbers suggest. Looking forward, 4 things matter at Chamberlain. The first is the admission pathway expansion that we've embarked on, including fast-track options that give students more flexibility in how they earn their degree. Second is campus expansion. Six new campuses are in active development. The first begins teaching in September and 2 have received full regulatory approval since Investor Day. Third is a new brand campaign for Chamberlain, which I expect will compound through fiscal 2027, both in enrollment growth and in the brand equity for Chamberlain. And last but not least, is the addition of a dynamically capable new leader for the university, whom I'll speak to in a moment. Chamberlain confers more nursing degrees than any other university in the country. That's no accident, and it's not easily replicated. At Walden, the story is one of sustained momentum on top of very strong comparables. Total enrollment grew 12.3% to over 54,000 students, a record for that institution. The work I'm proudest of is what Walden has done on student persistence. We started by focusing on first to second semester retention, and we've since pushed the same discipline deeper into the student experience. It shows up in the retention numbers and it compounds quietly over time, which is exactly the kind of operating asset we want to build. We launched several programs heading into the 2026 academic year, including clinical psychology and behavioral analysis, and they've already enrolled over 1,400 students. 7 additional programs were approved, 3 of which are starting intake shortly in fields like palliative care and special education. The speed at which Walden brings new programs to market in high-demand fields is a competitive advantage we intend to build upon. Medical and veterinary continues its strong performance. The top line is healthy, and the operating discipline keeps converting enrollment growth into strong financial outcomes. One operational point worth flagging. We've cut application review time by weeks through process improvements and workflow automation. Faster decisions mean a better applicant experience and a higher probability that strong candidates choose us. Our academic outcomes remain exceptional. We're tracking at a 97% first-time residency attainment rate with AUC at over 98% in the most recent cycle. On the veterinary side, our graduates continue to earn spots in the most competitive internships and residencies in the country, and we remain among the top universities in total veterinary placements. On our enterprise investments, our work with Google Cloud is moving forward on 2 fronts. First, we're codeveloping the AI-powered classroom of the future, built natively inside the platform our students already use. The goal is a personalized learning companion that supports each student from first course to graduation. Initial pilots launch later this year. Second, more than 4,000 learners have already enrolled in our newly launched AI credentials across nursing, medicine and foundational AI. Additional certificates in veterinary medicine, mental health and other disciplines launch later this year. The demand validates how urgently the health care workforce wants AI fluency. To keep this work grounded in clinical reality, we established the Covista Healthcare Readiness AI Council, with leaders, including Dr. Toby Cosgrove, former CEO of Cleveland Clinic; Dr. Selwyn Rogers of University of Chicago Medicine; and Dr. Betty Jo Rocchio, Chief Nurse Executive at Advocate Health. Building the most clinically grounded AI curriculum in health care education is our objective, and it's increasingly a differentiator that's resonating with health systems. Before I hand off to Bob, I do want to spend a moment on capital because how we allocate it is central to how we create value for you. Trailing 12-month free cash flow grew 17% to $336 million. We refinanced our long-term debt during the quarter, cutting 50 basis points off our rate and extending maturity to 2033. We repurchased $66 million of our stock in the quarter at prices we believe materially understate the long-term earnings power of this platform and are accretive to our intrinsic value. We ended the quarter at 0.7x net leverage. That balance sheet, combined with the cash this business generates, gives us multiple paths to create value at the same time, investment in campus expansion, employer partnerships and the AI platform, opportunistic return of capital to shareholders and the optionality to act decisively if the right strategic opportunity presents itself. We'll be disciplined about which dollar goes where, and we'll be transparent about the choices we make. On leadership, 2 important notes. Amelia Manning will join Chamberlain as its next President, bringing the student success operating discipline she developed as COO of Southern New Hampshire University, and Michael Betz will take on an expanded role as Chief Growth and Innovation Officer, adding marketing oversight to his leadership of Walden and our digital work. Both moves strengthen our ability to execute, and I have high conviction in both leaders. So to summarize, we delivered strong performance across every segment. Chamberlain has turned. Walden continues to compound. Med/vet is converting growth to financial outcomes. The capital structure is in great shape. The cash generation supports the investments we're making and structural demand for what we produce is durable and deepening. As we close the fiscal year, we will complete our 3-year growth of purpose strategy in a position of strength and move into purpose at scale. That next chapter is built on 4 pillars: operational excellence, platform extension, employer integration and technology focus. You heard the framework at Investor Day, but the point I want to leave you with today is a bit simpler. Purpose of scale is not a plan we're about to roll out for the first time. It's an extension of the operating model that's already producing this quarter's results, and you'll see that same discipline at a larger scale over the coming quarters. As always, thank you for your continued support. And now I'll turn the call over to Bob. Robert Phelan: Thank you, Steve. Our third quarter results reflect continued execution against our growth with purpose strategy and set the stage for our next chapter. We delivered strong financial performance, raised our revenue outlook and for the second straight quarter, raised our adjusted earnings per share guidance. We continue to benefit from a robust financial foundation while increasing our level of profitability through scale and operational excellence, all while deploying capital in a balanced and disciplined fashion. I'll now review our financial results and key drivers for the third quarter. Later in my remarks, I'll discuss the updated expectations and assumptions for the remainder of fiscal year 2026. Starting with the top line. Revenue in the third quarter increased 4.5% to $487 million, driven by enrollment growth across all 3 segments. As we flagged last quarter, Walden's results were impacted by the shift of 1 academic week from the third quarter into the second quarter of this fiscal year. This resulted in $18 million of revenue being recognized in Q2 rather than Q3. Excluding this 1-week timing impact, consolidated revenue would have increased 8.4% year-over-year. So on a comp basis, the organic trajectory of the business is tracking extraordinarily well. Consolidated adjusted EBITDA came in at $127.9 million. As with revenue, the 1-week Walden calendar shift had a meaningful impact on our third quarter margin profile as well. Excluding the timing impact, consolidated adjusted EBITDA would have increased 14.2% to $145.9 million and consolidated adjusted EBITDA margin would have been 28.9%, up 150 basis points from the prior year. Adjusted EBITDA growth was led by Walden, adjusting for the 1-week shift with both Chamberlain and med/vet contributing as well. Adjusted operating income was $102.2 million, and excluding the 1-week Walden revenue shift, adjusted operating income would have increased 14.1% compared to the prior year to $120.3 million as revenue growth and efficiencies generated operational leverage, which is partially offset by investments in our strategic growth initiatives. Adjusted net income for the quarter was $69 million and adjusted earnings per share was $1.98 and was also impacted by the Walden calendar shift. Now let me turn to our third quarter financial highlights by segment. Chamberlain reported third quarter revenue of $197 million, an increase of 2.3% compared with the prior year. Total student enrollment grew 0.5% to 40,767 students, reflecting Chamberlain's return to positive total enrollment growth, an important milestone as operational improvements we put in place earlier this fiscal year continue to gain traction. Chamberlain's return to positive total enrollment growth also coincides with the highest enrollment in university history. This was driven largely by pre-licensure, where we achieved our 15th straight quarter of total enrollment growth, reinforcing the durability of Chamberlain's positioning in that market. While post-licensure was lower, we experienced sequential improvement in RN to BSN and continued growth in the Master's program. Adjusted EBITDA for Chamberlain increased 2.9% to $58.5 million. Adjusted EBITDA margin of 29.7% expanded 20 basis points versus the prior year. We will continue to invest in Chamberlain's marketing and enrollment operations as well as into our new campus development as discussed at Investor Day. Turning to Walden. As we noted last quarter, second quarter results had benefited from the 1-week academic calendar shift, and this third quarter reflects the opposite impact. Third quarter revenue was $186.6 million, an increase of 4.6% versus the prior year. Excluding the $18 million revenue timing impact, Walden revenue would have increased 14.7% year-over-year to $204.6 million, reflecting the strong underlying enrollment growth. Total student enrollment grew 12.3% to 54,474 students joining Chamberlain and also setting a record this quarter and marking Walden's 11th consecutive quarter of total enrollment growth. This was attributable to broad-based gains across health care and non-health care programs and continued strong persistence rates. Adjusted EBITDA was $49.7 million, excluding the 1-week revenue shift, Walden adjusted EBITDA would have increased 25.5% to $67.8 million and adjusted EBITDA margin would have been 33.1%, up 280 basis points, reflecting the powerful operational leverage inherent in Walden's model. For the Medical and Veterinary segment, third quarter revenue was $103.5 million, an increase of 8.9% versus the prior year. Total student enrollment increased 4.1% to 5,344 students with growth in both our medical and veterinary programs. Adjusted EBITDA increased 20.1% versus the prior year to $27.5 million. Adjusted EBITDA margin of 26.5% expanded 250 basis points versus the prior year as we remain focused on operating our institutions efficiently while making long-term growth investments and delivering strong academic outcomes. Shifting to cash flow and the balance sheet. Our trailing 12-month free cash flow was $336 million, up 17% from the comparable year-over-year 12-month period, reflecting the strength of our operating model and high cash conversion. Net leverage declined to 0.7x as of March 31, 2026, with cash and equivalents of $147 million. During the quarter, we refinanced our long-term debt, consolidating into a $510 million Term Loan B with a 50 basis point improvement in rates while also extending the maturity to 2033. Our strong cash generation and healthy balance sheet continue to give us the flexibility to deploy capital toward high-return growth opportunities while returning excess cash to shareholders, including share repurchases of $66 million during the quarter. Based on our year-to-date performance and our expectations for the fourth quarter, we are raising both revenue and adjusted EPS guidance for the full year. Revenue is now expected in the range of $1.93 billion to $1.945 billion, up from our prior range of $1.9 billion to $1.94 billion. This reflects revenue growth of 8% to 9% for the full year. Adjusted earnings per share guidance is being raised to a range of $7.95 to $8.15, up from the prior range of $7.80 to $8. Our new guidance reflects growth of 19% to 22% over the prior year for earnings per share. The raised guidance reflects strong momentum across each of our segments, including our expectation for positive fourth quarter enrollment growth at Chamberlain, which we expect to look like our third quarter enrollment performance. Our guidance also reflects an elevated level of targeted strategic growth investments in the fourth quarter across our institutions that we believe positions us well heading into fiscal year 2027. The increase in adjusted earnings per share guidance also contemplates our continued commitment to expanding our fiscal year 2026 adjusted EBITDA margin by 100 basis points, and we continue to anticipate an effective tax rate higher than fiscal year 2025. We remain focused on executing against our strategic and financial goals, expanding access, delivering positive student outcomes, deploying capital to meet the growing demand in health care education and generating strong long-term returns for all stakeholders. And with that, I'll now turn the call over to the operator for Q&A. Operator: [Operator Instructions] And our first question comes from the line of Jeff Silber from BMO Capital Markets. Ryan Griffin: This is Ryan on for Jeff Silber. You've spoken about the strength of the SSM partnership at the recent Investor Day. I was just wondering if you have an update on that or any of the other employer partnerships and then how the conversations with the care providers have been going since we last spoke. Stephen Beard: So what I can say about SSM is that the relationship continues to thrive the sort of interest, the increase in applications and inquiries around the St. Louis campus have been really encouraging. So no specifics to share at this point, but it continues to be a great proof point of a new and differentiated way of thinking about talent acquisition for health care providers. Beyond SSM, we've got several conversations active around the country, and we hope to be able to announce new partnerships in the near term. But we're very encouraged by the outcomes that we're seeing in the early days of SSM and the interest that we're receiving from other providers. Ryan Griffin: And then just looking at the magnitude of the quarterly beat and then with your comments on the targeted investment in 4Q, I was wondering if there was any timing of expenses that you pushed out into 4Q from 3Q? Robert Phelan: No. The way I would characterize it is we do have a dynamic resource allocation model. We look at investments on a regular basis, and we're just making incremental investments in the fourth quarter is really the way to look at it as opposed to just shifting things from the third to the fourth. Operator: And our next question comes from the line of Jasper Bibb from Truist Securities. Jasper Bibb: Really nice to see Chamberlain returning to growth here. Can you just talk about the drivers of that and then the RN to BSN piece, what you're seeing for demand in that segment as well as your own performance in the quarter? Stephen Beard: Yes. So again, 2 quarters ago, we let you know that we had what we thought was an underperforming enrollment cycle in Chamberlain. We thought we had identified the root causes of that, all of which that we determined were in our own control. A quarter later, we gave you a sense of how that remediation was working, talking you through some of the leading indicators of enrollment there. And we let you know that we thought you'd see that in the results of operations as we began to exit the fiscal year. We're really pleased that, that remediation work has taken root in a way that allows us to go total enrollment positive a quarter sooner than we thought. And we're really pleased about what that means for the go-forward momentum for Chamberlain. As you know, all year, pre-licensure nursing at Chamberlain has been a bright spot for us. We had plenty of strength there. So what we were really focused on was the trends in post-licensure nursing, the largest piece of which, as you know, is our RN to BSN program as well as our other post-graduate programs. I'm really pleased to say that we've got great momentum in both of those categories. RN to BSN is not the growth category that it may have been 7 or 8 years ago, but we are the leader in that space. And as I indicated in prior calls, we have every intention of defending our leading position in that category. So pleased to see the early momentum show up in our reported results and look forward to seeing that momentum continue into Q4 and into the all-important fall enrollment cycle. Jasper Bibb: I noticed applications were up double digits again at Chamberlain. It seems like a nice signal ahead of the fall enrollment cycle. Have you seen the conversion from those applications normalize back toward, I guess, historical levels? Or is it maybe too early to say that? Stephen Beard: The short answer is yes. So as you'll recall, we identified a few categories of challenges. One was at the top of the funnel related to the marketing campaign that we launched a couple of quarters ago that underperformed. And as you also know, I mentioned at the time that we had record low conversion, all of which, in our view, is an execution failure. We have fixed that. And the fact of the matter is we are seeing conversion rates that are much more consistent with historical conversion rates, and that's really a reflection of what we've done on a personnel training and process basis at the bottom of the funnel. Just -- I want to clarify one point I made earlier about post-licensure nursing in response to an earlier question. Just to be clear, our MSN programs in post-licensure are actually larger than RN to BSN, but RN to BSN is a really, really important category for us, and we will defend our position there. Jasper Bibb: Last one for me. I think you said Chamberlain's fiscal fourth quarter should look like the third quarter from an enrollment perspective. Just to clarify, was that saying the absolute enrollment number in the fourth quarter should be similar to the third quarter or the year-over-year growth rate in enrollment should be similar to the third quarter? Stephen Beard: We expect the rate of growth to be directionally similar. Operator: And our next question comes from the line of Jack Slevin with Jefferies. Jack Slevin: Congrats on a strong quarter Maybe just to drop in on Chamberlain again, but ask it slightly differently. Obviously, performance a little better than we have expected. Leading KPIs seem to be positive. Now the incremental commentary there, Steve, on the conversion side. I guess as you look at the next, call it, 4 months here as you roll into the September enrollment cycle for 2026, like what are the key focus points that you need to sort of stay present on in order to drive that inflection that you've been talking about and sort of have a better year than you did last year? Stephen Beard: Yes. I think it really comes down to execution. Chamberlain occupies an enviable position in nursing education. It's got incredible brand equity that resonates with both students and employers alike. It's got a fantastic mix of programs across pre-licensure and post-licensure nursing. So it's a fantastic brand and a fantastic product to take to market. So it's really about executing in the way that we've historically been accustomed to. The fall enrollment cycle 2 quarters ago was an anomaly for Chamberlain. Chamberlain is a high-performing organization, and we feel that from a personnel and a process perspective, we are exactly where we should be. We're also welcoming a new President to Chamberlain, who will start work in earnest next week. We're really excited about what she will bring to the momentum at Chamberlain. And so as I said back at Investor Day, Chamberlain's best days are ahead of it, and we look forward to proving that out quarter in and quarter out. Jack Slevin: Awesome. Very helpful. And then this might be a little early and if anything goes the way that it did after the last Investor Day, then this question might come up fairly frequently. But upside in the quarter, you put out targets that are year-over-year that sort of stack on top of each other. Is it fair to say, as we look towards the '27 numbers that you still feel good about what you put out at Investor Day, even with the higher base coming through now on the raised guidance? Stephen Beard: Yes. I mean, philosophically, our view is that we want to put out targets that represent aggressive stretch goals for the organization that represent the art of the possible for our assets and for our people. We feel good about the 3-year targets we put out directionally at Investor Day. Obviously, as we get to fiscal '27, we'll have a full year guide for that year as we open the year, and that will reflect our best estimate of both the momentum in the business and the market opportunity in front of us. So we'll be able to provide a bit more precision on fiscal '27 at that time. Jack Slevin: Got it. And then last one, Steve, really helpful color on sort of where things sit in the pipeline of all the campus expansion you've talked about. Is there any way to think about -- I noticed the step-up in CapEx in the quarter. Is there any way to think about as you start to roll out those 10 to 15 eventual campuses in the plan -- in a multiyear plan where CapEx levels roughly should be shaking out on a run rate basis or any way to think about maybe just the next, call it, 2 to 4 quarters as we model things out? Robert Phelan: Sure. I'll take that one. What I would tell you is if you look at by quarter, the CapEx spend this year, you see the ramp-up. I mean, we spent $31 million in the first half of the year. We spent $20 million in the third quarter. What I would tell you is that I would expect the fourth quarter to ramp up further from where we were in the third quarter. And then if you take that into next year, that would be a good proxy for what to expect going forward. Operator: And with that, this does now conclude our question-and-answer session. I would like to turn the floor back to Steve Beard for any closing remarks. Stephen Beard: Thank you. We have the good fortune of coming out with earnings today in the middle of National Nurses Week. As the largest nursing educator in the United States, we just want to take a moment to salute nurses everywhere. They are a critical component of care delivery in the United States. It's a calling and a profession that we all rely upon. So a sheer thanks to all of the nurses and also a shout out to all of the aspiring nurses at Chamberlain and Walden across the country. Thank you so much. Operator: Thank you. And with that, ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a wonderful rest of your day.
Operator: Good day, and welcome to Definitive Healthcare's Q1 Fiscal Year '26 Earnings Call. [Operator Instructions] Now I'd like to turn the call over to your host. You may begin. Jonathan Paris: Good afternoon, and thank you for joining us to review Definitive Healthcare's financial results. Joining me on today's call are Kevin Coop, our Chief Executive Officer; and Casey Heller, our Chief Financial Officer. Before we begin, I'd like to remind you that today's discussion may include forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. These statements include, among others, statements about our market opportunity, future performance, growth and financial guidance, the benefits of our data and health care commercial intelligence solutions, our competitive position, customer behavior, adoption, growth, renewals and retention, planned investments and operating strategy, value creation for customers and shareholders and the expected impact of macroeconomic conditions on our business, customers and the health care industry. Forward-looking statements are based on our current expectations and assumptions as of today and are subject to risks and uncertainties that could cause actual results to differ materially. For more information, please refer to the cautionary statement in today's earnings release as well as the risk factors and other information included in our filings with the SEC, including our most recent Form 10-K and Form 10-Q. You should not place undue reliance on forward-looking statements, and Definitive Healthcare undertakes no obligation to update them, except as required by law. During the call, we will also discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures, along with related definitions and the limitations are included in today's earnings release and investor presentation, each of which is available on the Investor Relations section of our website. For any forward-looking non-GAAP measures, the earnings release also explains why a quantitative reconciliation is not available without unreasonable efforts and identifies the relevant unavailable items. With that, I turn the call over to Kevin. Kevin? Kevin Coop: Thank you, Jonathan, and thanks to all of you for joining us this afternoon to review Definitive Healthcare's first quarter 2026 financial results. On today's call, I'll provide highlights from our first quarter performance and give an update on the progress we continue to make on our key strategic priorities for this year. Let me begin by reviewing our financial results for the first quarter, which were at or above the high end of our guidance ranges on both the top and bottom line. Total revenue was $55.9 million, down 6% year-over-year. The adjusted EBITDA was $15.3 million, representing a margin of 27%, which was $2.3 million above the high end of our guidance. The outperformance is a reflection of our ongoing success in driving expense discipline across the business while investing in initiatives that we believe will return the business to top line growth. Additionally, the quarter benefited from a timing benefit that will be neutral to the year and slightly lower R&D expense in the P&L as we shifted more investment to innovation, which is reflected in the capitalized software development spend. We continue to generate solid cash flow, delivering approximately $50 million of unlevered free cash flow for the trailing 12 months. We are off to a solid start for 2026 that puts us on track to meet or exceed the full year financial targets we provided to investors at the beginning of the year. Before getting into specifics, let me give you a high-level overview of where the business stands. Our Diversified and Provider businesses, which combined represent over 60% of total revenue, have again demonstrated modest growth after returning to growth last quarter. This is an important achievement and gives us confidence that our efforts are having the expected impact, and we are investing to make this growth durable. Conversely, our Life Sciences businesses, which make up the remaining portion of revenue, continued to decline and is seeing slower response to the changes we are making. This segment has disproportionately been impacted by the claims disruption we've highlighted in the past as well as a challenging macro environment. We continue to see positive data points in critical areas. First, net dollar retention rate improved year-over-year in the first quarter on a trailing 12-month basis, and we are increasingly confident that this will continue to be sustained for the full year. Second, we had our highest win-back quarter in over 3 years in the first quarter, which we believe is another positive sign that our product, go-to-market and customer success investments are making the expected impact. Several 6-figure win-backs in diversified and med tech highlight common themes we see emerging. First, other vendors continue to fall short in matching the breadth and quality of our data sets, leaving customers with an incomplete view of the market and an unacceptable trust deficit. The second, that even customers who are particularly price-sensitive and thought alternative vendors would be good enough, recognize that the cost of an inferior data set far outweighed the trade-off, and this reinforces the need to remain vigilant on both data quality and service. While there is still more to be done to achieve our complete objective of returning to overall growth, these data points strengthen our conviction that we are focusing on the right things and that those areas of focus are responding. Importantly, these are areas of focus that are within our control. I would like now to provide an update on our operational progress against our 4 strategic pillars. As a reminder, these pillars are data differentiation, integrations, customer success and innovation. Let me begin with data differentiation. Our fall expansion pack release improved the breadth and quality of our claims data and its release was met with overwhelmingly positive feedback. As you know, data is at the heart of our value proposition, and we are continuing to make investments to source new proprietary data types and extend our lead with our core reference and affiliation data sets. We are increasingly focused on leveraging AI to increase the velocity of data collection and quality assurance. Our data differentiation was key in a 6-figure multiyear win with a life sciences customer who had previously been using a generic multi-vertical data source to target providers treating oncology and rheumatology patients. This customer was frustrated by its limited visibility into affiliation data, prescription patterns and key opinion leader identification. By deploying Definitive, they have meaningfully reduced the time spent on research, improved its KOL identification efforts and improved its sales strategy through better physician targeting. Our second pillar is focused on seamless integrations. Making it as fast and simple as possible for customers to access our data alongside any other data source they need is critical in delivering value and creating durable customer relationships. In the first quarter, we completed nearly 50 new integrations for customers and reduced the time to integrate by nearly 50% year-over-year. We are continuing our investments in developing new and enhanced integrations. We recently introduced a new HubSpot integration that will enable HubSpot users to access Definitive Healthcare's reference affiliation, financial and clinical data directly within their HubSpot CRM, giving sales teams a detailed view of contacts and accounts. This is in addition to the enhancements we added in Q4, where we enhanced Salesforce integrations to include our health care provider data directly into a customer's Salesforce instance, thereby improving their sales team's ability to identify, segment and engage physicians. Our data continues to show that customers that integrate Definitive directly into their systems of record and systems of insight utilize Definitive more often, and we become a stickier, more strategic component of their day-to-day operations, which in turn strengthens our renewal rates. Turning to our third pillar, customer success. We are also witnessing the impact of investments in this area bear fruit. The alignment of all functional teams that support the customer journey has led us to be a more proactive and engaged organization with our customers, which in turn has led to earlier identification of issues before they become problems and a better understanding and responsiveness in identifying opportunities where we can do more for customers. A great example of this in action was an upsell win this quarter with a biopharma customer who is an existing Monocl user. This customer was recently acquired by a larger organization, which gave our team the opportunity to educate the acquirer on the value we are delivering and how it can help the integration efforts of the 2 organizations by streamlining data sharing across the 2 groups. Finally, we continue to make progress against our fourth pillar, innovation and our focus on digital engagement, which is a critical component to our return to growth strategy. With the progress made in our first pillar, which fortified our foundation in quality and service, we are shifting more effort to this pillar in 2026. We continue to make progress developing our AI capabilities and expect to launch our first AI-enabled solutions to market later this quarter. Our focus is on embedding a next-gen AI-driven interface in our existing platform that will leverage natural language to allow customers to simply and intuitively query our data to uncover new insights that can then be actioned through our persona-driven workflows. Let me give you a couple of examples. To effectively identify top physicians, a requirement is access to highly accurate reference and affiliation data to resolve treating doctors and verification of roles. Then claims data, leveraging both Rx and Mx data is needed for procedure volumes and patient journeys. Our human-in-the-loop research data, which is also being enhanced with AI, confirms the HCP and HCE status and job functions. It is this breadth and depth, coupled with our contextual expertise that makes this possible. Claims vendors alone, which use modeled represent affiliation data tied to billing IDs not treating MDs or horizontal data vendors, which lack clinical activity entirely, would not be able to achieve the same result. To give customers the right answer to these type of questions they need requires that contextual expertise as well as longitudinal data and only our data can provide. This is the foundation on which our AI native investments will begin to enhance this coming quarter. In the digital activation area, we now have more than 30 agencies signed up with more than half of them actively generating bookings for Definitive. This is up from roughly 1/3 over the last quarter. Importantly, we are also seeing increased utilization from existing direct and agency customers alongside continued new customer adoption. We are encouraged by the very positive market feedback on audience performance and with a recent benchmark by a leading biopharma solutions company, which showed our audience has delivered a 63% higher click-through rate than a leading competitor. While it takes time for this agency activity to generate revenue, the growing number of active customers gives us confidence that we will be able to start scaling our activation business later this year in 2026 and beyond. To summarize, we are off to a solid start in 2026, and we are tracking well against our full year objectives. We remain focused on those things within our control, and we are driving improvement across all aspects of the business. We will continue to be opportunistic in investing in high-value areas that we believe will best position the company to improve retention and return the company to consistent predictable revenue growth over time. With that, let me turn the call over to Casey to review the financials in more detail. Casey? Casey Heller: Thank you, Kevin. In all my remarks, I'll be discussing our results on a non-GAAP basis, unless otherwise noted. As Kevin mentioned, we delivered a solid quarter with our performance at or above expectations across our key metrics. I'll walk through the financial results in more detail, including our revenue trends, margin performance and outlook. In the first quarter, we delivered revenue of $55.9 million, down 6% year-over-year. Adjusted EBITDA of $15.3 million, reflecting a 27% margin and expanding approximately 260 basis points year-over-year. And adjusted net income was $8.5 million, resulting in $0.06 of non-GAAP earnings per share in the period, all of which were at or above the high end of our guidance for the quarter. We also delivered $18 million of unlevered free cash flow in the quarter and nearly $50 million on a trailing 12-month basis. Turning to our results in more detail. Revenue of $55.9 million was at the upper end of our guidance range and represents a 6% decline year-over-year. Consistent with last quarter, the revenue decline is driven by life sciences. Both diversified and provider end markets, which make up 60% of our business continue to grow year-over-year. Overall subscription revenues of $53.6 million declined 7% year-over-year. Given the timing of when we began revenue recognition on our data partnership agreement last year, we still had about 2 points of benefit in the first quarter and will be fully wrapped on the benefit in Q2. We did deliver improvement in our renewal rates in the first quarter year-over-year and quarter-over-quarter. And we're pleased to share that we saw improvement year-over-year in our net dollar retention on a trailing 12-month basis, as Kevin mentioned earlier. Professional services revenue in the quarter was strong, up 25% year-over-year, driven by a combination of delivering on traditional analytics engagement as well as a ramp-up in our digital activations activity. Adjusted gross profit in the quarter was $45.2 million, which is down 4% year-over-year. As a percentage of revenue, the adjusted gross profit margin of 81% expanded nearly 150 basis points year-over-year, primarily benefiting from the short-term gap between removing one data source and onboarding an additional source that I mentioned last quarter. And as I mentioned earlier, adjusted EBITDA was $15.3 million and reflects a 27% margin, expanding 260 basis points versus prior year. Despite the continued top line pressures, we've continued to prudently manage the business and focus investments on the initiatives that will return Definitive to revenue growth over time. Q1 adjusted EBITDA margin expansion was driven by the timing gap on the data source changes I mentioned just moments ago and a shift in our product development efforts, which is driving a reduction in R&D expense but an increase in capitalized software development spend. Broader operating efficiencies also supported margin expansion and exceeded expectations. This provides additional flexibility to accelerate investments for growth as opportunities arise as we move through the year. Turning to cash flow. Our business continues to generate strong free cash flow due to our high-margin model, upfront billing and low recurring CapEx requirements. Operating cash flows on a trailing 12-month basis were $39.3 million, and we generated nearly $50 million of unlevered free cash flow over a trailing 12-month basis. Our conversion rate of the trailing 12-month adjusted EBITDA to unlevered free cash flow was 70%, which is down about 20 points year-over-year, primarily reflecting unique items that benefited the prior year. This cash generation provides flexibility to continue investing in growth. Consistent with last quarter, we continue to make organic product investments with an emphasis on expanding our AI capabilities and saw another quarter of increased capitalized software development spend, totaling nearly $3 million, up over $1.5 million from the prior year. And at the end of Q1, deferred revenue of $99 million was down 12% year-over-year and total remaining performance obligations declined 18% year-over-year. Current remaining performance obligations of $161 million declined 12% year-over-year. The total remaining performance obligations and current RPO year-over-year declines are similar to what we reported exiting Q4 and continue to be impacted by the shift towards single-year deals versus multiyear commitments that we discussed last quarter. To quickly recap the drivers behind the RPO declines. In 2025, we saw a greater percentage of our new logo additions signed 1 year versus multiyear commitments than in prior years. This impacts both RPO as well as cRPO. Last quarter, we explained that if you went back to the end of 2024, there was approximately $100 million of RPO on our books related to commitments that extended beyond 2025. As the year progressed, a portion of this would flow into cRPO this quarter as the contract progressed. Now as we fast forward to a year later at the end of 2025, we have $15 million less cRPO tied to multiyear deals expiring after 2026. This makes up a substantial portion of the cRPO year-over-year decline, and this dynamic holds true as we exit Q1. Before moving to our guidance discussion, there's one additional accounting item to mention. The recent stock price decline has caused us to book a further $197 million goodwill impairment charge as of March 31. That write-down also generated approximately $6.6 million of gain on the remeasurement of the TRA liability and a $3.6 million deferred income tax benefit. As a reminder, these are noncash accounting charges and do not impact our debt covenants and are excluded from our adjusted earnings. We had a solid start to the year and continue to make progress against our financial and operational objectives. Now turning to guidance for the second quarter. We expect total revenue of $55 million to $56 million, a revenue decrease of 8% to 9% year-over-year compared to Q2 2025. The year-over-year decline worsens modestly versus what we just reported for Q1, largely as a result of the full wrap on the initial contribution from the data partnership. Within the revenue guide, we expect to continue to deliver double-digit professional services revenue growth through the year. This results in expected adjusted operating income of $10.5 million to $11.5 million, adjusted EBITDA of $13.5 million to $14.5 million or a 24% to 26% adjusted EBITDA margin in the second quarter and adjusted net income of $5 million to $6 million or approximately $0.03 to $0.04 per diluted share on 144.2 million weighted average shares outstanding. For the full year 2026, we expect revenue of $220 million to $226 million for a 6% to 9% decline year-over-year. This remains consistent with the guidance provided on our last call. And we have continued to proactively manage our cost base while making targeted investments in growth areas. As we just discussed, higher capitalized software development spend is shifting costs from development spend to CapEx. This is a classification shift and is cash neutral. And translating that into dollars in 2026, we now expect adjusted operating income of $43.5 million to $47.5 million, adjusted EBITDA of $55 million to $59 million for a full year margin of 25% to 26%. This guide increases the midpoint by $1.5 million and reflects the strong start to the year and our ongoing commitment to maintaining strong margins while investing in our key growth areas. Adjusted net income is expected to be between $23 million to $27 million and earnings per share are expected to be $0.16 to $0.19 on 144.9 million weighted average shares outstanding. As we wrap up, I want to reiterate that while we are navigating ongoing top line pressures, we remain focused on sustaining non-GAAP profitability and strong margin profile while continuing to invest thoughtfully to support a return to growth. We believe our strategy is sound, and we are making steady progress against our key initiatives, which we expect will enhance retention, reaccelerate growth and drive long-term shareholder value. And with that, I would like to open it up for questions. Operator: [Operator Instructions] Our first question today comes from Craig Hettenbach of Morgan Stanley. Jialin Jin: This is Jay on for Craig Hettenbach. Just on the growth side, I understand that life sciences continue to be pressured while diversified and provider has seen some modest growth. So just wondering if you can share your thoughts on whether, I guess, 2027 could be like a return to growth and if you expect some margin improvement from there? Kevin Coop: Yes. So our growth prospects and the progress that we've made on our strategic pillars gives us a great deal of confidence that we're focusing on the right things, and that progress is most readily seen now in -- while it's actually improved across all verticals, it's especially showing up initially here in provider and diversified, and that reinforces that confidence. And while that's taking a little longer, we do think that the shift now that we are making from our original focus on data quality integrations and service and success, which is translating into these improved results, moving to the innovation and digital efforts will help us address some of the challenges that still remain in our Life Sciences segment. In particular, we think digital is going to start to impact that. And then also the claims remediation that we've spent several months repairing with our claims fall pack going into the data supply chain, which now has put us back to at or above historical levels on claims data. That will start to show up in that channel as well. So as Casey was mentioning, we've seen the early indications most pronounced initially now in provider and diversified, and we expect life sciences to be a fast follow. Operator: Next, we have Brian Peterson of Raymond James. Johnathan McCary: This is Johnathan McCary on for Brian. So one for you, Kevin. I wanted to ask on the integration front. It's good to hear the HubSpot progress building on the Salesforce work last quarter. How far or what inning are we in, in terms of taking care of those integrations? Are we basically through the low-hanging fruit and now we're in the later stages of that? Or how would you characterize the progress thus far? Kevin Coop: Yes. So as you know, obviously, we've talked about the materially higher retention rates in customers that are integrated versus those that are not, which is why we made this such a big focus area. I think there's a couple of data points that are particularly helpful in that area. And I'll talk about the productizing integrations in a second. But -- first was improving the speed of our integrations. And last quarter, we mentioned that we had made progress in that area, and we have brought down the average days for integration from what was over 100 days to 73 days in Q4. And we're pleased to be able to report that, that continued to improve. And our average number of days in Q1 was approximately 45 days. So we've radically improved the integration time line from over 100 days now to 45 days. In addition to that, by making this more of a focus with our go-to-market and customer-facing teams, our velocity has also improved. And we've completed 75% more integrations over the last 6 months than we had the prior 6 months before that. So not only are we doing more integrations, we're doing more faster and getting that in the hands of our customers, which is super helpful. And then more directly to your question was the investments that we're making around productizing those integrations, most recently with HubSpot that enables HubSpot users to access Definitive Healthcare's reference affiliation, financial and clinical data directly from their HubSpot CRM. That gives a much quicker visibility or a detailed view of contacts and accounts. That adds on to, for example, bringing physicians data into Salesforce last quarter, and we're continuing to make that a priority going forward. So I think it's a combination of all 3 of those things. Speed and velocity of getting more people integrated, making sure that when they are integrated that, that happens much, much faster. And then lastly, increasing the number of ways so that the customers can access our data in the most effective and efficient way possible the way they choose. Johnathan McCary: Very helpful. And then maybe this could be for Casey or Kevin. But on the new AI tools or AI-enabled platform you're talking about rolling out, I think you said later this quarter. How are you thinking about that? And I realize it's early, but from a monetization perspective, do you think that is more of a retention driver? Is that an incremental SKU or kind of a pricing lever? Just curious how you're thinking about that in the early stages here. Kevin Coop: Yes. So I think that the initial -- the good news inside that, and I think that's exactly the right question. We know that this will allow us to, number one, democratize access more effectively across our users because even though the product is very intuitive, it still requires some level of training and access to be able to use our UI/UX today or if you're getting it through a more sophisticated API or lake-to-lake, that's a little bit different story. But talking about the SaaS access, it still requires some level of training. The AI agentic layer now allows more people to more easily access that data, which that democratization will allow more people to more easily use it, and that will unlock more value. So I think that the most reasonable impact is going to be that will improve retention and it will increase value. And since we've always licensed our products based on value, that actually is in our sweet spot. The second stage, though, is as you bring out more feature functionality over time, I think that's where you're going to see more likely the pricing power to increase. But that being said, the democratization layer of just getting more value, even more value with just the renewal actually has a positive impact to the revenue profile as well. So I don't really see any -- there's no downside to it, right? So it's going to -- our retention rate gets improved and you bring up more value, which allows you to retain your customers with extracting higher value for their existing solutions. And at the same time, you're bringing on new solutions over time, which are easily integrated into your existing installed customer base, which is going to give you upsell, cross-sell... Operator: From BTIG, we have David Larsen. Jenny Shen: This is Jenny Shen on for Dave. Just wanted to ask a little more about that biopharma demand environment. We recently had one of our large CROs that we cover report, and they commented that they're seeing green shoots on the emerging biopharma side with some of the smaller players with funding good and more conservative spending and decision-making with the large pharma companies. Have you seen that dynamic or any notable dynamic on your side? Or has it been pretty consistent throughout? Kevin Coop: Yes. So thanks, Jenny, for that question. I think it's helpful initially just to remind folks that the segmentation to appropriately compare kind of apples-to-apples in the space is there are certain providers in the space that have both first stage and second stage clinical assets. So that would be more R&D, early stage drug trial and then later, where we, Definitive primarily play in second stage, which is more around commercialization. We happen to have a very marquee installed customer base with very large biopharma customers, which is great. And so the challenge, though, even if you're seeing some green shoots with smaller emerging providers, that is difficult to offset the larger customers that are actually shifting dollars from commercialization to that first stage clinical investment in R&D. So what we're still seeing is we're seeing the second stage commercialization efforts are still somewhat muted. That's natural in this type of macro environment that happens cyclically with the biopharma industry. We do see more incremental dollars are being invested in R&D budgets to bulk backup product portfolio. And there's a couple of minor things inside there, for example, patent expirations and that type of thing, which also impact it. And then what this does, though, is it does actually present the potential growth opportunity that as those assets move towards commercialization, which takes time, especially with the larger biopharma customers, which are investing heavily in the short term, that will actually be demand for us later. And sometimes when you're comparing in that peer group, you have to look at where and what stage they're in, if it's in that R&D stage, which is helping to offset the second stage impact if they have both first and stage clinical assets. And in our case, we do not. So I think that, again, coming back to where we think the opportunities are is that because of our focus on the integration pillar that we were just talking about earlier, which seamlessly integrates our data without sacrificing data quality, that's allowing us to start to show, especially with the increased data quality to offset that bundled offerings from other vendors by combining higher quality with ease of use. And the fact that we've been able to successfully integrate 160 customers last year and move more than 50 this quarter is demonstrating that, that strategy is working. And we know that those integrated customers over time, as they move into commercialization, that will start to show up in our Life Sciences business -- our Life Sciences segment as well. Operator: Next, we'll hear from Jeff Garro of Stephens Inc. Jeffrey Garro: I want to go further on the life science end market. The 2 highlighted wins in the release are both life science or biopharma related. And you also gave several more examples on the call. So I think clearly, you have some proof points of value with those kind of large and sophisticated customers. And it all kind of contrasts with the broader decline you've described for that segment. So I was hoping you could elaborate on the Life Science segment, the kind of overall demand environment, the recent win rate that Definitive has had within that segment? And lastly, just when the claims disruption will stop being a factor for that segment? Kevin Coop: Perfect. So I will start with the last first, which if you think about the likely -- the cohort cycle that we'll be in. So having returned to historical levels of claims data, and in fact, now in the first quarter, we're now above historical levels. And often, those customers were buying data based on records and size of data payload. So when you have potentially, let's say, a 30% decline in records, that was what was the factor pushing on our downsell pressure, which we've largely worked through. Now that we've returned to those historical levels, we expect that the customers that we are now entitling today will actually not experience the same level of down pressure when they come up for their renewals. We started to see that shift as we were repairing the claims data set later last year. But unfortunately, a lot of buying decisions are made earlier than we were able to get that in market. And so we are -- we think we're seeing the tail of it now, right? It's not a perfect science, but we believe that we've sort of experienced the worst of it. We're out of it. We've repaired the data supply chain and that, that should -- going forward, it should be significantly improved. In addition to that, the core question about the commercialization, you've got to work your way through the R&D Stage 1 cycle to get to Stage 2, and we don't really control that. So that's the one thing that's outside of our control. But what we can do is we can make sure that those customers that are still actively in the business of working with our data today to commercialize current products in market, including through our digital activation and ad tech assistance that we're maximizing the relationships the best that we can in the short term while we wait for that to return. Operator: From Deutsche Bank, we have George Hill. George Hill: Just -- there's a lot of talk about AI. I was wondering if you could talk about how you guys are using AI to change how you package and product the data assets that you have? And can you talk about how it changes how your clients will consume or ingest that data? And kind of one of the things I wanted to talk about is, do you expect AI to have an inflationary or deflationary impact on like your [ HCP? ] Kevin Coop: Yes. So the first thing I would say about AI in general with health care, which we think is a -- it's why we believe that this is a tailwind is that the technology itself isn't sufficient to effectively maneuver inside of the complex environment that is health care. So understanding the domain, it's very different than other vertical applications and understanding the -- including with the data that we have, much of which is proprietary, that contextual expertise combined with our data, we think is a very durable advantage for Definitive. Then you have to look at why that complexity -- it's relatively straightforward as an executive to a company is less so understanding the relationship of a physician to a practice location to the affiliated practice locations, to the reference pathways of affiliated surgery centers and other care sites and then ultimately, the reference data that needs to be mapped to both technographic data, insurance networks and consumer personas. So just as a sort of like high level, it's super complex. So now when you have that domain expertise and that contextual expertise along with differentiated data, we're basically applying the AI initially in order to allow us to go to harness that and to accelerate both internally and externally what we already do today. So the deep vertical data assets based on curated proprietary and domain-specific data sets are not easily replicated and that longitudinal data that we have, which requires if you wanted to do any kind of time series analysis or historical understanding of patterns or market analysis, you wouldn't even be able to get access to that. So the first thing that we're doing is we're using AI internally with our engineering and development teams, which are already massively using it. We've been using it in some areas through machine learning and whatnot for a while. But that is now a major part of our internal commercial and engineering effort. The second thing that we've done is we've deployed that now in our operational efficiencies for things like our customer success, call centers and to make our internal teams more effectively. And then the third is the product, which we haven't really talked about in too much detail, but the first elements that are coming out this quarter, so that's soon to be discussed in greater detail is what we expect to be coming out later this year. So we've got this tremendous amount of diverse data. It's used in multiple ways. Example, HCP targeting or market share analysis, our next-generation product architecture that leverage AI will enable customers to more rapidly unlock the insights that they already rely on today in a more democratic fashion. And we believe that this is going to not only increase usage and the ability for people to access that platform, but it's thereby going to drive more value, which will, at the very least, protect our current revenue rate. And ideally, as we bring more online, it will allow us to price in and more cross-sell, upsell. Operator: [Operator Instructions] And we'll hear from David Grossman of Stifel. David Grossman: Sorry to ask you to repeat this, but I think there are various dynamics that are affecting year-over-year compares as we migrate through the year, both on revenue margin and I think also on the cRPO and RPO. Can you just briefly -- very briefly just summarize what those are just to make sure that we've got them all? Casey Heller: Sure, David. So let's start with kind of the cRPO element. So really what's driving a significant portion of that decline, so it's declining 12 points year-over-year. That's consistent with what it was when we exited Q4, is this dynamic of having sold fewer multiyear deals and seeing a shift towards single year deals. So that's creating about a $15 million headwind year-over-year, which is about half of that total cRPO decline. So that kind of shows why cRPO is demonstrating a decline at a greater rate than what we're expecting from a top line standpoint. The other component that I would say drives a bit of the disconnect between cRPO and our revenue outlook is that we're continuing to expect double-digit growth throughout the year in professional services revenue, and that's a combination of our professional services and analytics work in addition to the digital activation revenue stream, which has been ramping up here. And those are components that just really aren't going to show up in cRPO. Some of those -- we don't really kind of see those bookings until we're much closer to recognizing that revenue. So that drives another little bit of that disconnect on that standpoint. The other thing to just recall from a top line perspective, in Q1, I mentioned that we got a couple of points of benefit from the data partnership that we had signed back at the end of '24. We didn't start the revenue recognition on that until partway through Q1 of last year. So there was a little bit of lift here in Q1, but we've now fully anniversaried that. So that's no longer a compare element as we hit second quarter and beyond. David Grossman: Okay. Got it. No. I mean if that was everything, I just wanted to make sure I have everything. So is that reflected then in the sequential revenue growth in the second quarter, the 2-point benefit that you had in 1Q, right? So you're losing about what, $1.2 million in revenue sequentially. Does that sound, right? Casey Heller: Yes, we're not actually losing revenue sequentially because that's more of the way it showed up the last year. So it was just from a compare standpoint. But if you look at kind of the midpoint of our guide has total revenue roughly flat essentially as you move through the remainder of the year. So there's a stability there at the midpoint of the guide. And then there would be more of a sequential increase as we get up to the higher end of the guide. David Grossman: Right. I got it. Okay. So that's just in the base last year had nothing to do with the first quarter, right? Casey Heller: Correct. Correct. David Grossman: Okay. And then on the cRPO, when do you think you comp out the first part of your explanation in terms of duration -- duration of deals? Casey Heller: Yes. We definitely expect to continue to see that live with us for the next several quarters. And we can provide more color on what we think that's looking like as we get closer to the end of the year, but that is a dynamic that we do expect to see and do continue to expect to see double-digit declines in cRPO for the next couple of quarters, given the multiyear dynamic and when that pops up. David Grossman: So does that mix shift though, continue into 2027, though, in terms of how you -- the year-over-year compare? Casey Heller: Yes. I think there's an element here, too, that's going to depend on the mix of the signings that we deliver in the back end of this year and if there's more kind of multiyear components within that. But so it's a little hard to say like when you're going to fully kind of anniversary because there's a mix element there. But if we kind of assume that the shift that we've seen now lives through, then we'll probably have another couple of quarters of this, and then I would expect to see a little bit more of a stabilization and a tighter correlation of cRPO to revenue. David Grossman: Got it. And then just the final one, I think it was claims disruption, Kevin, I think you said that you're back above historical levels. So does that suggest then that that's no longer a headwind as we migrate through '26? Casey Heller: Yes. I would say that the way we think about the claims data disruption is we got the new claims data source in the initial line in early part of Q4. And at that point, a lot of customers had already made kind of their renewal decisions. And we think about the timing of -- we do over 30% of our annual renewals in December and January. I don't think that us getting that new data source and really have the ability to impact and influence that -- those decision points. So it's something that in addition to bringing on an additional new data source that will come into product here shortly, we think that it will certainly won't be the headwind that it has been as we move forward. But I think we need to see how kind of the next couple of quarters of renewals play out, but we're confident that we've taken kind of the right actions to get the incremental claims data like back into a product and back into customer hands. Operator: We have no further questions at this time. I'll turn the program back over to our host for any additional or closing comments. Casey Heller: Thank you, everybody, for joining this afternoon. We appreciate the questions and looking forward to talk to you again in 90 days. Operator: That concludes our meeting for today. You may now disconnect.
Operator: Good afternoon, and welcome to the Creative Media & Community Trust Corporation First Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key. Please note this event is being recorded. I would now like to turn the conference over to Steve Altebrando, Portfolio Oversight. Please go ahead. Steve Altebrando: Hello everyone, and thank you for joining us. My name is Steve Altebrando, portfolio oversight for Creative Media & Community Trust Corporation. Also on the call today are David Thompson, our Chief Executive Officer, and Brandon Hill, our Chief Financial Officer. This call is being webcast and will be temporarily archived on the Investor section of our website, where you can also find our earnings release. Our earnings release includes a reconciliation of non-GAAP financial measures discussed during today's call. During this call, we will make forward-looking statements. These forward-looking statements are based on the beliefs of, assumptions made by, and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties, and other factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will prove to be incorrect. Therefore, our future results can be expected to differ from our expectations, and those differences may be material. For a more detailed description of potential risks, please refer to our SEC filings, which can be found in the Investor Relations section of our website. With that, I will turn the call over to David Thompson. Thanks. David Thompson: Hello, everyone, and thank you for joining us today. I would like to begin with an update on the strategic plan we outlined on prior calls: strengthen our balance sheet, improve liquidity, and sharpen our focus on premier multifamily assets. We made meaningful progress against those priorities in the first quarter. Over the past several months, we have taken actions to position Creative Media & Community Trust Corporation for long-term stability and growth. During the quarter, we completed the redemption of $243 million of preferred stock into common stock. This was a transformational step for the company that significantly improved our balance sheet and will improve our funds from operations starting in 2026. We expect the redemption to increase our FFO by approximately $16 million per year and return the company's capital structure back in line with our long-term targets. Since first announcing our plan to strengthen our balance sheet and improve liquidity in September 2024, the company has redeemed $396 million of preferred stock into common stock. In parallel, we have also shifted our financing strategy toward an asset-based approach. We have completed financings on nine assets and have fully retired our recourse credit facility. As a result, we now operate with minimal recourse debt, significantly reducing risk and improving our flexibility. We also sold our lending division in January 2026. After accounting for debt repayment, transaction expenses, and other related items, this transaction yielded net cash proceeds to the company of approximately $31 million. In summary, we believe that we have restored the company to a position of financial health. With a stronger balance sheet, improved liquidity, and a more focused portfolio, we are now well positioned for growth. Going forward, our primary focus is on improving FFO in 2026 and 2027. We believe there are two key levers that will enable us to achieve this. First, we are focused on improving property-level performance across our portfolio. Second, we expect a substantial reduction in preferred dividend obligations. As a reminder, we completed the redemption near the end of the first quarter, so the impact of that action was only minimally reflected in our first quarter FFO. The full benefit of that redemption will begin in the second quarter. In addition, we are continuing to take proactive steps to further strengthen our financial profile. We are actively working to extend debt maturities on a handful of assets, and at the same time, we will continue to evaluate selective asset sales where we see opportunities to unlock value, improve portfolio quality, or redeploy capital more efficiently. We believe that executing on these priorities is critical to reducing what we believe is a substantial gap between our current share price and the intrinsic value of the portfolio. To put that in perspective, on a cost basis, our undepreciated book value was approximately $147 per share at the end of the first quarter. We believe this highlights the underlying value of our assets and reinforces the opportunity ahead as we translate operational improvements and capital structure efficiencies into stronger financial performance. Now turning to net operating income and trends for the first quarter. Starting with office, NOI declined approximately $0.6 million year-over-year. This was primarily driven by a one-time benefit in the prior-year period related to a tax appeal we won and which should not recur this year. Excluding our Oak Glen 2 office asset, our office lease percentage was approximately 85.7% at the end of the first quarter, representing a 470 basis point increase year-over-year. In our multifamily segment, performance was notably stronger. Excluding our joint venture properties, NOI increased 64% year-over-year. When including our JV properties, NOI increased modestly, primarily due to noncash changes in appraised values. Occupancy across the multifamily portfolio improved to 89.6% at quarter-end, an increase of 940 basis points compared to the prior year. Importantly, after several very challenging years in Oakland, we are beginning to see early signs of recovery supported by improving fundamentals in that market. Turning to our hotel asset, NOI declined by approximately $0.7 million year-over-year. This was largely attributable to temporary factors, including renovation-related disruptions early in the quarter and an issue in one of the mechanical systems that temporarily removed a number of rooms from service in March. However, I am pleased to report that the renovation was substantially completed during the first quarter. Over the past two years, we have renovated all 505 guest rooms, along with the property's common areas, positioning the asset for improved performance going forward. In summary, we continue to see encouraging operating trends across the multifamily portfolio as well as in our Los Angeles and Austin office assets and at the company's hotel property in Sacramento. With that, I will turn the call over to Steve to provide additional color on our refinancing activities and property-level performance. Thanks. Steve Altebrando: The actions we have taken over the past several quarters have significantly improved our balance sheet and will strengthen our funds from operations. We are now well positioned to benefit from improving fundamentals, particularly in our multifamily assets in the Bay Area. Today, Creative Media & Community Trust Corporation owns 621 residential units across two premier Class A assets in the market. After several challenging years, we are beginning to see the recovery gain momentum, supported by a strengthening San Francisco residential market with demand increasingly bolstered by growth in AI-related employment and investment. At the end of the first quarter, our Oakland multifamily occupancy increased to 91.9%, representing an improvement of 860 basis points compared to the end of the first quarter last year. In addition, we are also seeing concessions ease in the market, particularly at our 1150 Clay asset. More broadly, in the adjacent Downtown San Francisco market, multifamily fundamentals have rebounded significantly. In 2025, rent growth reached 7.6%, the highest growth rate in 25 years, followed by an additional 7% increase in 2026. Vacancy has declined to 4.3%, the lowest level in nearly 20 years. In Oakland, we are also seeing encouraging signs of recovery. Vacancy has declined to 7.8% at the end of the first quarter, down from a peak of approximately 18% in 2021. Importantly, rent growth turned positive in 2025 after three consecutive years of decline and increased by 2.9% in 2026. Turning to Los Angeles, we have made solid progress across our two new LA multifamily assets. At 701 South Hudson, our partial conversion of office to residential is now 88.2% occupied. As we mentioned on our last call, we received entitlements in 2026 to build an additional 50 units on the back surface lot of the property. We are currently working on predevelopment and anticipate having the option to start that project later this year. At 1915 Park, our ground-up development in Echo Park, we achieved 52.8% leased at quarter-end. This 36-unit project delivered in the fourth quarter is located in a highly desirable, walkable submarket with significant dining and entertainment options. The development is a joint venture with an international pension fund and was built on land adjacent to our office property at 1910 West Sunset. Including our joint ventures, we now have five operating multifamily assets. Turning to the office segment, we executed approximately 20.162 thousand square feet of leases in the first quarter and continue to see an active pipeline of activity, particularly in LA and Austin. Excluding the company's one Oakland office asset, our lease percentage stood at 85.7% at the end of the first quarter, representing an improvement of 470 basis points year-over-year. At 11600 Wilshire Boulevard, we recently commenced a renovation program focused on several small suites. We believe this targeted investment will enhance leasing activity and tenant demand. This project is expected to be completed over the next few months. Finally, in our hotel segment, we have substantially completed the renovation of the property's public spaces, following the full renovation of all 505 guest rooms. This marks the first comprehensive renovation of the property since its acquisition in 2008 and positions the hotel well for improved performance in 2026 and beyond. We are also evaluating an opportunity to add eight new guest rooms by converting currently underutilized space, which we believe would be highly accretive. Turning to financing, we are actively engaged in three initiatives. At the Sheraton Grand, with the renovation now substantially complete, we believe there is an opportunity to both increase the loan balance and reduce the borrowing spread. At 1150 Clay, we are in active discussions with the lender and anticipate securing a one-year extension on the mortgage as we continue to work to improve the asset's NOI. Finally, at our Oakland office property, we are seeking an extension of the loan maturity. However, we cannot guarantee we will reach an agreement with the lender. For context, in 2025, this asset generated $0.8 million of cash flow after debt service. With that, I will turn the call over to Brandon. Brandon Hill: Thank you, Steve. Good afternoon. I am going to spend a few minutes going over the comparative financial highlights for 2026 versus 2025, starting with our segment NOI, which was $9.8 million in 2026 compared to $11.8 million in the prior-year comparable period. Broken down by segment, the decrease of approximately $1.9 million was driven by decreases of $0.728 million from our hotel property, $0.602 million from our office properties, and $0.59 million from our lending business. Our hotel segment NOI for Q1 2026 was $4 million versus $4.7 million in Q1 2025. This decrease was largely attributable to temporary factors, including a renovation-related disruption early in the quarter and an issue in one of the mechanical systems that temporarily removed a number of rooms from service in March. Our office segment NOI for Q1 2026 was $6.5 million versus $7.1 million in Q1 2025. The decrease was primarily driven by a decrease in tenant reimbursement revenue at an office property in Oakland, California, and an increase in real estate tax expense at an office property in Beverly Hills, California, driven by a tax refund recorded in the prior-year period. In January 2026, we completed the sale of our lending business, First Western, for a purchase price of approximately $44.9 million. As the lending segment activity was de minimis during the period it remained under our ownership during Q1 2026, related amounts were excluded from segment-level activity. Our lending division NOI was $0.59 million in the prior-year period. Our multifamily segment net operating loss of $113,000 remained fairly consistent compared to the prior-year comparable period. Below the segment NOI line, we had an increase in depreciation and amortization expense of $1.2 million, primarily due to an increase in tenant improvement amortization at an office property located in Beverly Hills, California, as well as an increase at our hotel property due to renovation projects that have increased depreciable assets. We also had an increase in loss on early extinguishment of debt of $0.705 million, which was incurred in connection with the full payoff of our lending division revolving credit facility during 2026. These were partially offset by a gain on sale of $1.7 million as a result of our sale of First Western during Q1 2026. Our FFO was negative $28.8 million, or negative $58.47 per diluted share, compared to negative $5.4 million, or negative $900.83 per diluted share in the prior-year comparable period. The decrease in our FFO was primarily driven by an increase in preferred stock dividends of $21.9 million, a decrease of approximately $1.9 million in total segment NOI, and an increase of $0.705 million in loss on early extinguishment of debt, partially offset by a decrease of $1.3 million in redeemable preferred stock dividends. Our core FFO was negative $5.9 million, or negative $11.89 per diluted share, compared to negative $5.1 million, or negative $846.5 per diluted share, in the prior-year comparable period. This decrease in core FFO is attributable to the previously discussed changes in FFO, while not impacted by the increase in loss on early extinguishment of debt or the increase in redeemable preferred stock redemptions, as these are excluded from our core FFO calculation. With that, we can open the line for questions. Operator: We will now open the call for questions. If you are using a speakerphone, please pick up your handset before pressing the keys. Showing no questions, this concludes our question and answer session. And the conference has also now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Starz First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Nilay Shah, Investor Relations. Nilay Shah: Good afternoon. Thank you for joining us for Starz Entertainment's First Quarter 2026 Earnings Call. We'll begin with opening remarks from our President and CEO, Jeffrey Hirsch; followed by remarks from our CFO, Scott MacDonald. Also joining us on the call today is Alison Hoffman, President of Starz Networks. After our opening remarks, we'll open the call for questions. The matters discussed on this call include forward-looking statements, including those regarding expected future performance. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors. This includes the risk factors set forth in our most recently filed 10-KT for Starz Entertainment Corp. Starz undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. The matters discussed today will also include non-GAAP measures. The reconciliation for these and additional required information is available in the 8-K we filed this afternoon, which is available on the Starz Investor Relations website at investors.starz.com. I'll now turn the call over to Jeff. Jeffrey Hirsch: Thank you, Nilay, and thank you all for joining us. Today marks the 1-year anniversary of our separation. The Starz of today is structurally stronger than the business was when we separated a year ago. Over the last 12 months, we've made significant strides in setting the business up for long-term value creation. We have been laser-focused on achieving our financial goals of increasing margins to 20%, converting 70% of adjusted OIBDA to unlevered free cash flow and delevering to 2.5x as quickly as possible. I'm happy to report in our first year, we have met or exceeded all our key financial targets, created a new licensing revenue stream by restructuring the Canadian business, started to rebuild our content library through ownership, announced our first co-commission partner, helping to improve unit economics of our originals, the aged our slate while expanding our most popular franchises. And overall, we have unwound many of the constraints of operating within a studio structure. As I outlined on the last call, calendar '26 will serve as a financial inflection point for the business. Cash flow timing is now closer aligned with industry norms. Adjusted OIBDA is becoming more predictable and consistent, and we are managing the business against the metrics that matter most: OTT revenue growth, adjusted OIBDA, free cash flow and delevering. We are off to a great start in calendar '26. We had a strong first quarter, meeting or exceeding all financial guides, which Scott will discuss in more detail. Our structural work is showing up directly in the numbers, and our content continues to perform. The finale of Power Book IV: Force started the quarter off strong. The premier Season 8 of Outlander achieved a 4-year series high in its Premier Week. And just after the quarter, we released -- the Housemaid and it quickly set records as our best-performing Pay 1 film in both acquisition and streaming viewership. I expect this momentum will continue through the year. We have one of the strongest content slates ahead with our proven hit series, Raising Kanan, Outlander: Blood of my Blood and P-Valley, supported by the upcoming MICHAEL biopic. Congratulations to John and the Lionsgate team for the great box office performance. It will further strengthen our already robust schedule this year. In addition to our lineup of returning series, we announced this week that our first STARZ owned original Fightland, will premiere in just a few months on July 31. If you recall from the last quarter, we also announced Sky as the co-commission partner on Fightland, driving even more upside to the already favorable unit economics. We also continue to make advances in our ownership strategy beyond Fightland with the recently announced greenlight of another STARZ owned original, the untitled Black Rodeo show. This family drama is set inside the thriving world of the Black Rodeo in Texas and production is set to begin this fall. This is another example of us continuing to build out our content library through ownership, which I remind you, allows us to control the cost from inception and globally monetize our IP. As we have continued to highlight, rightsizing the content cost structure of the business has been paramount to reaching our stated goal of 20% margin. Today, we are announcing that we have exited our Pay-Two agreement with Universal. The Universal titles, which we originally planned to air through calendar '28 are incredibly popular and bring with them tremendous box office strength. However, due to the high subscriber overlap between Amazon and Starz, these titles are heavily watched before they come to us in the Pay-Two window. This unique dynamic with Amazon has resulted in lower viewership than we originally projected. In order to replace the revenue component of the Pay-Two, we will reinvest and acquire high-performing titles at superior economics. As a result, I'm pleased to announce that our outlook for reaching 20% margin has moved 12 months forward to the back half of 2027 instead of exiting 2028. We are thankful to our partners at Universal for working with us to find a mutually beneficial solution. We continue to see 2 paths for value creation for the Starz business. First, our focus has been growing the core business to achieve the 20% margin guide. Second, we believe there's an additional path to growth through potential M&A opportunities. Our approach to M&A remains disciplined. Any strategic initiative must be complementary and additive to our core audience, must fit within an acceptable leverage parameter and create clear and identifiable value for our shareholders. But given the strength and the profitability of our core business, we do not need M&A to maximize shareholder value. Before I turn it over to Scott, I would like to reiterate how excited I am about the growth of our business going forward. The free cash flow conversion is materializing. We are advancing ownership of our content library. We've rightsized the overall content portfolio, and we are anticipating continued rapid delevering. Starz remains focused and committed to executing on our growth strategies. We said calendar '26 would be an important year in showcasing what the business will look like as a stand-alone. The first quarter serves as evidence of just that. Now let me hand it over to Scott to take you through the financial details. Scott MacDonald: Thank you, Jeff, and good afternoon, everyone. I'm pleased to report that Q1 2026 was a strong quarter financially, and we delivered on or ahead of our key guidance metrics. Before I get into the financial details, I want to remind everyone that we are focused on 4 metrics going forward: OTT revenue growth, adjusted OIBDA, free cash flow and leverage. The decision to deemphasize subscriber counts is already being validated as pricing discipline and a focus on higher lifetime value customers are proving more valuable than maximizing quarter end subscribers. Let me start with revenue. OTT revenue in Q1 was $211 million, up from $210 million in Q4 2025. Total revenue in Q1 was $307 million, down from $323 million in Q4 2025. This sequential decline primarily reflects the timing of Canadian licensing revenue. The sequential growth in OTT revenue is an important benchmark, and it was driven by exactly what we set out to do, pricing discipline on both the acquisition and retention side, fewer low-priced entry offers, more annual and multi-month plans. This is deliberate and is improving the health of the business. While we are not disclosing ARPU directly, ARPU did grow on a sequential basis in the period. We expect ARPU to continue to build through 2026 as promotional customers convert to higher retail rates. In addition, we recently announced a price increase to $11.99, which will flow through the subscriber base starting in Q2. We continue to forecast positive OTT revenue growth in 2026 versus 2025 and are already ahead of where we expected to be at this stage of the year. Moving on to adjusted OIBDA. We delivered $58 million of adjusted OIBDA in Q1 2026, up sequentially from Q4 2025 due primarily to lower advertising and G&A expenses. On a year-over-year basis, adjusted OIBDA was down due to lower revenue and higher content amortization, offset by favorable advertising and marketing expenses. Importantly, adjusted OIBDA came in ahead of our internal plan, which gives us confidence in our full year guidance of low single-digit adjusted OIBDA growth. We also expect our quarterly adjusted OIBDA cadence to be more consistent in 2026 relative to 2025. In Q1, as part of our efforts to rightsize our content cost structure, we recorded a $139 million restructuring charge, the majority of which is related to the write-off of content with limited strategic value for our platforms. As the agreement with Universal was entered into in April 2026, we will record the Pay-Two restructuring charge in the second quarter of 2026. The revised terms meaningfully improve our cash payment obligations, creating a significant reduction in cash content spend beginning in 2027. Moreover, we believe this is the final component of our post-separation content rightsizing efforts. Combined with the ongoing de-aging of our original slate and the growing owned content contribution, this gives us clear line of sight visibility to reaching our 20% adjusted OIBDA margin target in the back half of 2027, a full year ahead of our prior guidance. Cash content spend in Q1 was $113 million, down year-over-year due to the timing of spend on output movies and originals. For the full year 2026, we continue to expect content spend to come in below $650 million, a meaningful decline from 2025. We expect the convergence of content spend and programming amortization to improve significantly in 2026 as compared to 2025 and continue to improve thereafter. When they reach near parity, you will see the full benefit of our content strategy reflected in the cash flow statement. Unlevered free cash flow was $81 million in Q1 2026, up $147 million year-over-year, while equity free cash flow was up $136 million year-over-year to $69 million. I want to note that Q1 was positively impacted by lower content spend, which we expect to catch up in Q2. Accordingly, we are not raising our free cash flow outlook at this time. Turning to the balance sheet. As of March 31, our net debt was $523 million. Our leverage ratio at the end of Q1 was 3.1x, lower than our internal expectations for the period, and we remain confident in achieving our 2.7x year-end target. I do want to note that leverage increased modestly on a sequential basis due to the timing impact of trailing 12-month adjusted OIBDA, not a reflection of any change in the underlying business trajectory. Our $150 million revolver remains undrawn, and we have significant liquidity and financial flexibility to manage the business. Let me close with guidance. We are reaffirming our full year 2026 outlook across all metrics. OTT revenue growth versus 2025, low single-digit adjusted OIBDA growth versus 2025, $80 million to $120 million of unlevered free cash flow, leverage exiting the year at approximately 2.7x. We will remain disciplined in how we manage the business, and we are confident in our ability to deliver on these metrics. Finally, 2027 is now setting up to be a very significant year for margin expansion and improved free cash flow generation, given the restructuring benefit, owned originals ramping and continued content cost reductions. Now I'd like to turn the call back over to Nilay for Q&A. Operator: We will now begin the question-and-answer session. Go ahead, Nilay. Nilay Shah: I was going to say thanks, Scott. You can hand it over for Q&A. So we can start. Thank you. Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from David Joyce with Seaport Research Partners. David Joyce: Regarding the Universal deal, can you size the portion of your available titles, that represented? Is it all theatrical? Or is there episodic in there? And where would you be sourcing more content from? Would it have similar kind of aging? And what are the checks and balances that you've gone through to make sure you don't have overexposed content again? Jeffrey Hirsch: David, it's Jeff Hirsch. Thanks for the question. This is a really unique situation because of the size of the overlap of our subscriber base sitting on Amazon, which sits in the Pay-One B from Universal. And so what you're really seeing is we were paying Pay-Two prices for library performance. And so we've talked a lot about the data information we have on the business. And we've been able to use the data to kind of recreate and reinvest into other library titles that give us the same kind of performance so we can protect the revenue component of that while actually just putting money to the bottom line while we reinvest. And so it's a little bit of money ball where we actually look at various titles from library from across the industry to kind of recreate the performance that we had at a much better economic level. Operator: The next question comes from Brent Penter with Raymond James. Brent Penter: First one for me. Could you talk a little bit more about -- last quarter, you announced you're not reporting subs and you're deemphasizing subscribers. How are you seeing that reflected in your results so far? Anything specific you can talk about in terms of customer lifetime values, churn, overall revenue, how that's benefiting you? Alison Hoffman: Thank you so much for the question. I think we're really seeing the rewards of the pricing discipline that we put into the business. In this past quarter, we have seen churn reach an all-time low in our business. Basically, we're not bringing in low-value subscribers in the way that we were when we were in a quarterly sub chase. And so the health of the business is really there. Just another stat in terms of the last quarter that was really strong is engagement was really strong for the business. So we have a strong content quarter and we saw year-over-year engagement up about 8%. So I think we feel really good that this is the right way to approach and operate the business for the long-term revenue growth goals that we have as opposed to, again, orienting around a quarterly sub chase. Brent Penter: Okay. Great. That's great color. And then I also want to ask about the shareholder rights plan put into place in March after there was a big chunk of your shares that changed hands. Can you help us understand why that was put into place, why now? And then the rationale for the 1-year time line expiring next March? And then, Jeff, is that at all related to the M&A possibility that you just laid out? Jeffrey Hirsch: Yes. Look, great question. I think there's a few components. So one is a newly separated company. And as you've seen, the market cap has moved around a lot and run up. So we wanted, I think, with the Board, we wanted to make sure that we had the ability and the time to kind of get the business rightsized and get value to the right place. And I think you're seeing that reflected in the stock and the market cap today. And so I think that the Board was really coalesced around making sure that we had the ability to get the business in the right place. Also, I think the Board is really also coalesced around our long-term vision for the business and how we can scale the business and wanted to make sure that we were laser-focused on that without any distraction. So we put that in place. It's a 1 year term. And then next year, we'll come up probably for a shareholder vote, whether we extend it or not. Brent Penter: Okay. Okay. Got it. And then final question for me. With the Universal Pay-Two deal ending and you're moving up the 20% margin goal. As we think a couple of years out to 2028, does this mean maybe you could get even above that 20% goal as we look ahead? Or is this really more of a timing thing that it's just a matter of when you hit the 20%? Jeffrey Hirsch: I think it's a combination of -- we knew that we had the titles through calendar '28. And so as that was rolling off, we had great line of sight into what that margin profile would look like. As we're able to work with the Universal and move that forward, that obviously brings the profitability of the company greater into a shorter period of time. But as you know, there's multiple ways to grow margin in the business. I think as we continue to put more ownership on the network, de-age the slate, get into '28 and '29 where the majority of our originals are owned by Starz and kind of bring that entire portfolio over, there may be some opportunity to continue to grow margin as well. Operator: The next question comes from Vikram Kesavabhotla with Baird. Vikram Kesavabhotla: I think you mentioned in the prepared remarks that you guys raised price recently. It'd be great to hear more about what gave you the confidence to make that decision and perhaps any of the early feedback that you're seeing from customers who've seen that increase. Alison Hoffman: Yes, Vikram, thanks for the question. We executed our price increase on April 1, and we have done this before. We are really positioned very well as a complementary service. $11.99 is a great price point for the value that we offer and for the audiences that we serve. So far, the price increase is digesting really well throughout our business. It's going to expectations. We'll have more information as we get into the summer and it really sort of plays out through the business. But going to plan and going very well, we think that we're very, very well positioned at that price point. Jeffrey Hirsch: I would also add that April is off to a really strong start even with the rate increase coming in April 1. Vikram Kesavabhotla: Okay. Great. And then separate from that, I know you've talked about in the past getting to half year slate by 2027. It'd be great to get your updated thoughts on how you feel about that goal right now and maybe some of the puts and takes that will affect your ability to get there? And maybe just some more color on the progress you've made on some of the projects that you already have going. Jeffrey Hirsch: Look, I've never been more excited about the pipeline that we have in the business. We just announced an untitled Black Rodeo Show, which is -- I think it's going to be one of our biggest shows. We're excited about production beginning that on in the fall. Fightland, which is our first owned original will premiere July 31st. We released a lot of the first look footage pictures of that yesterday, and it looks amazing. And we've got Kingmaker in development. We've got Masquerade in development. We're out. We've landed a couple of book series that we think could be big franchises for us. We've got all 4s. We've announced Plan B being our production partner there. We're putting more writers around that. And so the pipeline has never been more full and more exciting. And I think you couple that with the Pay-One Lionsgate, we're going to have a very, very strong content slate for the next 1 to 2 to 3 years. And so we're right on track to delivering against that 50% goal, and I think we'll actually accelerate past that. Obviously, the hope is to get most of the slate owned and controlled by Starz long term, and that's something we're laser-focused on. Operator: [Operator Instructions] The next question comes from David Karnovsky with JPMorgan. Douglas Samuel Wardlaw: Doug Wardlaw on for David. I'm wondering now that you're out of this agreement with Universal, what's the criteria for the acquisition of titles you'll be looking for to properly lead to whether user acquisition or to the churn? And then separately, does this lead to more room for spend on original content? Jeffrey Hirsch: So great question. We've developed a really robust database of first title streams and viewership on movies that we've acquired over the past from all the different studios. So we have a pretty good sense on in terms of indie films, what kind of viewership and first title stream that we can pull from different titles depending on how -- what their box office was, how old they are, what characters are in it, what's the storyline. And so we're really able to kind of, like I said earlier, Moneyball the portfolio to replace what we were seeing from the Universal titles at a much more of a library price. we were paying Pay-Two rates and they were performing much more like library because of just the strength of the titles being watched to Amazon. So we've got a pretty good view on what we need to acquire and at what price. And so there's an ability to put a lot of the savings to the bottom line. You see that moving the guide to 20% in '27, but we're also reinvesting in the business to protect the revenue side of the business as well. And so we've been able to do both in a much highly economic positive aspect to the business. Douglas Samuel Wardlaw: Great. And then I guess, separately, you mentioned P-Valley is coming back at some point this year, and it's been a long gap. And I'm just wondering what your data kind of says about audience reengagement for shows that have hiatuses that long? And does that kind of lead to more marketing spend to kind of get some of those viewers back that may have been gone? Jeffrey Hirsch: It's a great question. Look, I think with P-Valley specifically, and we've seen this with other shows that have had longer breaks, Outlander is a good example where we've had a lot of breaks. The fan bases are so obsessed with these shows that they've been continually looking for it and coming back on the network. So I actually think the moment we bring P-Valley back, the obsessiveness and the craziness for the fan base will get people there. We also have the ability, obviously, within app to notify customers, which is a zero cost game for us as well. And so we've got a lot of different marketing tools that are not economically expensive for us to go ahead and bring them back. But I -- Outlander is a great example. That fan base has created a thing called Outlander, which is the off-season, and they're online every day, wondering when that show is coming back. And I think P-Valley brings that same kind of intensity from the fan base. And so I expect it to be a wonderful return to the network and a massive both subscriber gain as well as viewership gain when we get it back on the air. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Nilay Shah for any closing remarks. Nilay Shah: Thank you, operator, and thank you, everyone. Please refer to the News and Events tab under the Investor Relations section of our website for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thanks, everyone. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the RingCentral First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded. I'd now like to turn the conference over to Al Petrie, Investor Relations for Ring Energy. Please go ahead. Al Petrie: Good afternoon, and welcome to RingCentral's First Quarter 2026 Conference Call. Joining me today are Vlad Shmunis, Founder, Chairman and CEO; Kira Makagon, President and COO; and Vaibhav Agarwal, CFO. Our remarks today include forward-looking statements regarding the company's business operations, financial performance and outlook. These statements are subject to risks and uncertainties, some of which are beyond our control and are not guarantees of future performance. Actual results may differ materially from our forward-looking statements, and we undertake no obligation to update these statements after this call. If the call is replayed after today, the information presented may not contain current or accurate information. For a complete discussion of the risks and uncertainties related to our business, please refer to the information contained in our filings with the Securities and Exchange Commission as well as today's earnings release. Unless otherwise indicated, all measures that follow are non-GAAP with year-over-year comparisons. A reconciliation of all GAAP to non-GAAP results is provided with our earnings release and in the slide presentation, which you can find under the Financial Results section at ir.ringcentral.com. With that, I'll turn the call over to Vlad. Vladimir Shmunis: Good afternoon, and thank you for joining us. We are off to a strong start to the year as we delivered another solid quarter with total revenue at the high end of our guidance. Importantly, we are also making meaningful progress in the quality of our operating model. We delivered record GAAP and non-GAAP operating margins, reduced stock-based compensation, paid down debt and returned capital to shareholders, including our first ever dividend. These are important milestones and reflect the business that is becoming more efficient, more profitable and more durable over time. As to free cash flows, we now expect approximately $600 million of free cash flow this year, which is approaching $7 per share that we believe is among the best in our peer group. Moving forward, we plan to continue to reduce SBC with a path towards our medium-term target of 3% to 4% of revenue. And we are steadily building toward our goal of 20% GAAP operating margin in the next 3 to 4 years. Our strong financial performance is rooted in operational discipline that is underpinned by our unwavering commitment to innovation and a strong competitive position. As one of the original cloud-native SaaS providers, we revolutionized customer communications by taking it from on-prem legacy infrastructure to the multi-tenant cloud. On the strength of that innovation, we've built a $2.7 billion ARR business that is growing, generating a healthy amount of cash and is returning value to shareholders in a meaningful way. RingCentral's original success was rooted in the convergence of broadband, mobility and cloud computing. We leveraged these megatrends to transform how hundreds of thousands of businesses and millions of users worldwide communicate with their customers. Today, we're at the start of an even bigger innovation namely AI, and specifically the rise of agentic voice AI. AI builds on top of all the world-class assets that RingCentral has created over the years. It plays directly to our strengths. With our robust platform, massive amounts of rich data, omnichannel communication capabilities and global GTM and innovation at scale, we are well positioned to leverage AI as a key driver of our long-term growth and profitability. While agentic AI is very powerful and will be transformational to how businesses interact with consumers, our core belief is that it won't replace all humans. AI can and will do a lot and it will make remaining humans in the loop more effective. RingCentral's secret sauce is to deliver agentic voice AI experiences at every stage of consumer-to-business interactions, while enabling businesses to get human agents involved at the right time. RingCentral's differentiated approach is to make both AI agents and human agents smarter by working together seamlessly, resulting in better customer outcomes and greater cost efficiencies. This hybrid human-in-the-loop model is where RingCentral excels. More specifically, our ability to orchestrate AI and human interactions at scale on a single platform across voice, text and video and do this at a global scale with industry-leading reliability, security and quality of service. This is our structural advantage and a defensible competitive moat. RingCentral processes tens of billions of minutes and billions of calls and messages each year. As the front door to consumer to business interactions at scale, we are uniquely positioned to deploy AI across every stage of the journey before, during and after human involvement. We offer a modern end-to-end customer engagement platform spanning all consumer-to-business interactions. Our portfolio includes RingEX for Cloud PBX, RingCX and RingCentral Workforce Engagement Management or RingWEM for full features contact centers, and our recently introduced Customer Engagement Bundle or CEB for informal contact center capabilities. We embed agentic voice AI across our entire platform. Our agentic voice AI portfolio or RCAI is currently comprised of AI receptionist or AIR and AIR Pro, which automate customer interactions from the get-go; AI Virtual Assistant or AVA, which assist the human agent in real time; and AI Conversation Experts or ACE, for deep conversational analysis and coaching. Overall, we are good at helping businesses connect with more customers, resolve issues faster and more cost effectively, capture more leads and make remaining human agents more effective. Adoption of our AI product portfolio is strong. Customers using our AI adopt more products, spend more with us and stay longer, driving higher ARPU and net retention well above 100%. ARR from customers who utilize at least one of our [ Ring ] AI products, which we refer to as our key AI utilizing customers, has more than doubled year-over-year and is growing in double digits sequentially with favorable ARPU and retention metrics. Kira and Vaibhav will provide more details. In summary, I'd like to leave you with these 4 takeaways. First, RingCentral has a deep and defensible moat in an expanding market. We have built a carrier-grade communications platform with the scale, reliability and trust required for mission-critical customer interactions. As AI expands the scope of customer engagement, we believe that our market opportunity is only getting larger, and we are uniquely positioned to capture it. We are currently investing over $0.25 billion per year in innovation with a meaningful and increasing portion dedicated to RCAI. This is another sustainable competitive advantage, and we're confident in our ability to keep investing in innovation while continuing to further improve our operating metrics moving forward. Second, we are at the front door and top of the funnel for consumer-to-business communications. We sit where interactions begin, where customer intent is first expressed and where routing and resolution decisions are made. This gives us access to the real-time context and workflow intelligence that are increasingly valuable in the AI era. Third, we have a complete customer engagement platform powered by RCAI. This allows us to bring together AI agents and human agents on a single platform across voice, messaging and video. This is delivering real value for customers, and we are already seeing solid early adoption, growing monetization, higher ARPU and strong retention across our RCAI utilizing customer base. Important to note is that all of our RCAI and customer engagement products are fully owned by RingCentral with attendant benefits to control over the road map, time to market and owner economics. We believe this to be another important competitive moat. And fourth, we're delivering strong financial performance. We're improving non-GAAP and GAAP profitability, reducing SBC, generating meaningful free cash flow and free cash flow per share that is among the best-in-class and returning capital to shareholders via buybacks and dividends. Our results speak for themselves, and we could not be more excited about the road ahead. With this, let me turn it over to Kira. Kira Makagon: Thank you, Vlad, and good afternoon, everyone. Vlad laid out our vision, a complete customer engagement platform built on a hybrid model of AI and humans working together, delivering seamless customer experiences and better business outcomes. Here's an example of this vision becoming reality. Meet Cartelligent, a California-based automotive broker, deployed our entire RCA portfolio, AIR, AVA and ACE. Previously, their high-value leads were being routed to an answering service where many calls were dropped. With AIR, they decreased lead abandonment to 0, connecting 100% of live leads during business hours and achieved an 85% lead to sign-up target. AVA eliminated manual note taking, ACE delivered visibility and coaching to keep improving. As the result of all 3 ACE working together with human in the loop, they achieved a 9.85 out of 10 customer satisfaction score. Let me unpack these solutions further. AI Receptionist, or AIR, is designed for front office workers who demand it just works, deployable in minutes, no developers required, built for businesses of any size. AIR can now receive customer inquiries over voice and text messages. AIR is also integrated into call queues, handling overflow and missed calls to improve responsiveness without adding operational overhead. The market is responding well. We ended Q1 with more than 11,800 paying AIR customers, up more than 40% quarter-over-quarter. For customers requiring more complex configurable use cases, we recently introduced AIR Pro. With AIR Pro, customers can create multitude of fit-to-purpose agents, leveraging over 100 prebuilt integrations, including EHR, CRM, scheduling, e-commerce and billing. Users simply describe what they need their AI agents to do. AIR PRO builds and deploys it, executing multistep workflows. We already have our first paying customers with health care emerging as a natural early fit given AIR Pro ability to address rich workflows while maintaining ease of deployment. One example is a federally qualified health center that was already running RingEX, RingCX and ACE. They added AIR Pro to handle real-time shuttle routing for patients. The agent recognizes the caller's location, [ hearing ] time and live shuttle status to guide patients to the right pickup point. It sounds simple. The underlying workflow is not. That's exactly the point. AIR Pro makes complex orchestration effortless for the customer and for the business, and once the conversation ends, ACE takes over. ACE now has more than 5,200 customers, up 85% year-over-year. Sales, marketing and compliance leaders use it to automate interruption reviews, connect conversation intelligence into their CRM and ticketing systems, and replace mail evaluations with complete visibility across every call. Take ATB, the largest financial institution in Canada. They added RingEX seats and ACE to eliminate the time lost on manual analysis, a strong example of AI and humans working together. With human agents handling customer interactions, ACE delivers the post-call analysis, surfacing sentiment, gaps and next steps, giving supervisors a clear picture of every conversation, scoring agents and the coaching data to continuously improve human agent performance. As Vlad mentioned, we have an extensive R&D spend with a wave of new innovations opening up new use cases and expanding our TAM. These investments are leading to tangible results. Last week, we introduced branded messaging via Reach Communication Services, also known as RCS, delivering a verified business identity directly into customers' native messaging app. This pairs up with enterprise branded calling, which displays a company's name and logo on outbound calls, driving higher answer rates from the first moment of contact. We also expanded support for SMS notifications with local numbers to 190 countries, so businesses can engage their customers wherever they are with the same reliability they expect from RingCentral. Building upon our hybrid model of AI and humans working together, SMS is an important customer engagement channel for both. Customer Engagement Bundle or CEB is our latest product introduction, and it is off to a strong start. CEB already has more than 5,000 customers with nearly 40% attach rate of our paid AI products. CEB brings informal contact center capabilities to RingEX, including contact center grade [ focus ] and SMS shared inboxes. One example of a customer using these capabilities is Worldwide Steel Buildings, a Missouri-based company already using RingEX and ACE. They added CEB to manage queues, eliminate missed inquiries, and now get a complete view into every interaction, all on one platform. Importantly, CEB is now available for Microsoft Teams, embedding voice, call queues, SMS inbox, intelligent routing and analytics inside Teams, effectively turning Teams into an informal contact center. As to formal contact centers, RingEX now has more than 1,700 customers, up over 70% year-over-year with more than half utilizing AI. For example, Excelsior Orthopaedics in Amherst, New York was struggling with a 22% call abandonment rate and hold times averaging 30 minutes. With RingCX and ACE Quality Management, they cut abandonment to 8% and reduced wait times tenfold, down to just 3 minutes. Together, CEB and RingCX give customers powerful rightsized options across both informal and formal contact centers and a clear path to grow with us as their needs evolve. The combination of our RingEX, RingCX and AI portfolio, robust platform, omnichannel capabilities is fueling ongoing migrations from on-prem to cloud. For example, this quarter, Coca-Cola United, the third largest Coca-Cola bottler in the U.S. with 60 locations is migrating thousands of seats to RingEX. A large Fortune 500 insurance company replaced their on-prem system and is further expanding RingCentral enterprise-wide deployment with tens of thousands of RingEX seats. The New York Mets are replacing a decade-old on-prem system with RingEX, RingCX and our call queues booster. A major Internet and streaming provider added RingEX to their existing RingCX deployment, along with AI capabilities, including ACE to drive greater operational efficiency. [ Casio ], an iconic consumer electronics company, consolidated their legacy systems onto RingEX and RingCX and added ACE quality management to automatically score calls and improve visibility across every customer interaction. Our innovations continue to be well received by the channel and our GSP partner community, in particular. Multiple GSPs partners are now extending their offerings to include our AI products. Cox Communications recently began deploying our native AI-powered contact center to their customer base. And this quarter, TELUS and Spectrum Business have also started bringing our AI portfolio to their customers, expanding our reach and reinforcing platform's value at scale. In summary, we're delivering significant value to businesses and the industry analysts are recognizing this. This quarter, we were named a leader in both the inaugural 2026 IDC MarketScape for worldwide communications engagement platforms and the 2026 Omdia Universe for customer engagement platforms. From serving SMBs to enterprise and addressing simple to complex needs, and with our unwavering commitment to innovation and a well-differentiated GTM, we're in a strong position to deliver a modern, complete, AI-first customer engagement platform at scale. And with that, I will turn it over to Vaibhav. Vaibhav Agarwal: Thank you, Kira, and good afternoon, everyone. We started 2026 with another solid quarter and delivered against all the commitments we laid out entering the year. Q1 reflected continued consistency in our execution and further strengthening of our financial profile. Let me turn to our first quarter results. Starting with growth. Total revenue was approximately $644 million, up 5.3% year-over-year and at the upper end of our guidance. Subscription revenue was approximately $623 million, up 5.6% year-over-year. Customer trends remained healthy, including steady new customer additions and monthly net retention above 99%. These metrics continue to reinforce the resilience of our recurring revenue model and the mission-critical role our platform plays for customers. As Vlad noted, we are seeing encouraging early momentum in our AI-led new products. Customers using at least one AI product now represent more than 10% of the base, have doubled year-over-year and are growing in double digits sequentially. Within these cohorts, we see stronger ARPU and net retention rates above 100%. Our growth profile remains durable and newer products are increasingly contributing to both expansion and overall revenue quality. Turning now to profitability. We delivered another quarter of strong margin performance. Subscription gross margin remained stable above 80%. Non-GAAP operating margin reached approximately 23%, up 110 basis points year-over-year and at the high end of guidance. We continue to view this margin expansion as structural. It is being driven by the underlying leverage in a high recurring revenue model at scale, combined with disciplined hiring, expanded offshoring, vendor consolidation, greater internal use of AI and continued focus on our highest return go-to-market and products. SBC as a percentage of revenue declined approximately 400 basis points year-over-year to 9% in Q1. For the full year, we now expect SBC to be approximately 9% of revenue in 2026, down from approximately 11% in 2025. This continued improvement reflects our disciplined approach to equity management and gives us confidence in our path forward toward a steady-state level of 3% to 4% in the medium term. The combination of stronger non-GAAP margin and lower SBC drove a record GAAP operating margin of 7.8%, improving by more than 600 basis points year-over-year in Q1. For the full year, we now expect GAAP operating margin to improve from 4.8% in 2025 to more than 9% in 2026. That is a meaningful step forward and reinforces our confidence in reaching our target of 20% over the next 3 to 4 years. Turning to cash flow. We generated more than $140 million of free cash flow in the quarter, up 8% year-over-year. This reflects strong operating performance, continued efficiency gains and improvements in working capital. We generated free cash flow per share of $1.62, up 15.4% year-over-year. Recurring revenue, strong gross margins and improving operating efficiency continue to translate into substantial cash generation. As a result, we are now raising our full year free cash flow outlook to approximately $600 million or a 13% improvement year-over-year. Now let me turn to capital allocation. Our approach remains balanced and disciplined. We are investing in growth, delevering the balance sheet and returning capital to shareholders. During the quarter, we addressed the $609 million convertible maturity by refinancing it with the undrawn Term Loan A. We reduced overall debt by approximately $46 million and lowered net leverage to 1.6x. We continue to make steady progress towards our goal of reducing gross debt to $1 billion by the end of 2026. Importantly, we now have no maturities until 2030, and we maintained $355 million of undrawn credit capacity. We also continued to return capital to shareholders. During the quarter, we repurchased approximately 2.5 million shares for $81 million. At the end of Q1, we had approximately $418 million remaining under our repurchase authorization. The diluted share count declined 6% year-over-year to approximately 87 million shares, and we paid our first quarterly dividend of $0.075 per share during the quarter. With that, let me turn to guidance. For fiscal 2026, we are raising subscription revenue to be $2.54 billion to $2.56 billion, representing growth of 4.7% to 5.5%, raising total revenue to be $2.62 billion to $2.64 billion, representing growth of 4.2% to 5%, raising GAAP operating margin to 8.9% to 9.6%, expanding 450 basis points year-over-year, raising non-GAAP operating margin to 23.3% to 23.7%, expanding 100 basis points year-over-year, raising free cash flow to $590 million to $605 million, up 13% year-over-year. SBC in the range of approximately $240 million to $245 million, improving 180 basis points year-over-year as a percent of revenue. Fully diluted share count of approximately 86.5 million to 87 million shares, 5% lower year-over-year, raising non-GAAP EPS to be between $4.85 to $5.01, up 13% year-over-year. This results in free cash flow per share of $6.78 to $6.99 for the year, up 18% year-over-year. For Q2 2026, we expect subscription revenue of approximately $628 million to $633 million. Total revenue of approximately $648 million to $653 million. GAAP operating margin of 6.6% to 7.6%, up 110 basis points year-over-year. Non-GAAP operating margin of approximately 23% to 23.2%, up 50 basis points year-over-year. Non-GAAP EPS of $1.15 to $1.17, up 10% year-over-year. SBC in the range of approximately $58 million to $62 million, improving 130 basis points year-over-year as a percent of revenue. Fully diluted share count of approximately 87 million shares, lower by 6% year-over-year. In closing, Vlad has stated 4 key takeaways, namely deep and defensible moat in an expanding market, RingCentral as the front door and the top of the funnel for consumer-to-business interactions, complete customer engagement platform powered by RCAI and strong financial performance. To double-click on the last point, we have an efficient business at scale and a durable compounding free cash flow model. With approaching $600 million of expected free cash flow in 2026, we have the flexibility to reinvest for growth, strengthen the balance sheet, all while returning capital to shareholders, and I couldn't be more excited about the opportunities ahead. With that, let's open the call for questions. Operator: [Operator Instructions] Today's first question comes from Tim Horan at Oppenheimer. Timothy Horan: Great quarter, and congratulations on expanding the margins and creating a lot of new products. Vlad, you kind of -- well, you invented the UCaaS industry and had great vision there. Can you talk about where this new AI hybrid agent communications industry will be 5 or 10 years from now? How pervasive will AI be in voice communications? Can you talk about maybe any new products and services we'll see? And how rapidly are AI models improving at this point? How rapidly are your services improving as you see it even right now? Vladimir Shmunis: Yes. Great. Tim, you're too kind, but thank you. Look, I'll go right to left. How fast are things improving? Speed of light, I don't know. These models are getting progressively better, progressively more independent. They are absolutely changing the way things are done across everything. And we -- RingCentral, we are actually in a very interesting position to where we are both very heavy users of AI internally, and spending quite a bit of attention and effort on that, but as well as, of course, providing frontline, customer-facing AI tools. And some of these AI tools are designed to basically get the human out of the loop and some of them are specifically designed to enhance human productivity. So to the first part of your question, what we see moving forward, I don't know, 10 years is a long time, but say, for the foreseeable future, basically more or less a hybrid world. What I mean by hybrid is some interactions are best handled by AI. That will only increase and AI will become more and more powerful. But we still very much see room for a human in the loop. And this comes in where, look, I mean, AI, at least for the foreseeable future, is probably not going to be able to address each and every inquiry. And you know what, I'll give you a simple example, and sometimes people oversee this. There are things that AI will not be allowed to do legally, okay? For example, AI is probably not going to be in a good position to provide medical advice if it is on behalf of a licensed medical provider. So for the foreseeable future, we don't see AI being licensed as a practicing physician or someone who can do prescriptions and so forth. And where it all comes together is that, let's say, you have a customer inquiry or a patient inquiry coming into a medical provider and AI answers whatever it can and it can do quite a lot. It can answer billing questions, it can set up appointments, it can maybe even read your test results without commenting. But at some point in time, you well may want to ask for some specific advice and AI then has to connect you to an actual human being. And this is why when we talk about our key AI portfolio, we talk about AI before a human gets involved, AI while a human is involved and then AI after either an AI agent or a human agent is done with the call. So then we have AI processing recordings and transcripts, getting learnings from that. And then the extreme and amazing power for all of this, it gets all fed right back in. So next call, both AI agents and human agents can be smarter, more productive, more efficient. So that may be a little bit longer answer maybe, but we think that world is going to be neither all AI nor all human, but a bit of both. And where we, RingCentral are just very fortunate to find ourselves is we are one of a very, very small handful of providers that can actually serve both needs of the same platform. Because if you think about it, you have legacy providers, especially some of the on-prem legacy providers to this day that can bring no AI basically. And then you have lots of start-ups, but they cannot really connect to a human. They have to integrate with third parties. RingCentral, we are able to serve both needs, okay? So single platform, single invoice, single SLA, single bill, all kinds of efficiencies and cost savings across the board. And we are able to, again, field this complete, well-integrated hybrid human agent, AI agent portfolio, so that's what we're banking on. Operator: Our next question today comes from Catharine Trebnick at Rosenblatt. Catharine Trebnick: Nice quarter. So I have 2 questions, and I'll be brief with them. One is it looks like you've really stabilized your revenue growth, roughly 5% in the last several quarters and full year guide implies at the same range, same dance. So you cited AI ARR more than doubled year-over-year, now approaching 10% of total ARR. RingCX is gaining traction. You've got Mitel, Avaya pipeline. So can you explain to me where you think the business is going to break decisively above 5%? Vladimir Shmunis: I'll take a stab. Hi Catharine, a really good question. Look, one is thank you for noticing. Yes, I mean, we -- numbers speak for themselves. I don't need to really cite them. So look, we're a large company. We're still growing. We are growing steadily to restate what you all are extremely well aware of right now is we have made a major pivot towards profitability, including GAAP profitability and free cash flow and free cash flow per share. We're very proud that all of the positive changes that we were able to effect, and we really are pretty close to best-in-class at this point on FCF basis. And as far as growth is concerned, look, we have meaningful portions of the portfolio going in double -- strong double and in triple digits, and in certain cases, double or triple digits sequentially, okay? And I can tell you that when I was IPO-ing this company back in 2013, if you were to take our AI portfolio or our customer engagement portfolio, we'd be independent publicly traded companies just based on that, probably worth more than RingCentral was worth at the time of our IPO back then, right? So we absolutely have these green shoots. But it is a $2.6 billion business. Industry is going through transformation. We are certainly seeing price rationalization, especially at the high end. And as we discussed before, we're still lapping some -- we still have some COVID lapping contracts even to this day, so they are being repriced as they come up for renewals. But look, I think future is bright. Future is bright. We are hitting on all cylinders. Eventually, our AI-led products -- and by the way, all of our products are AI-led, given the growth vectors and given size of the market that we're seeing, we are very, very confident that we have a lot of room to grow. There is still -- obviously, there is execution. Nobody -- we're not taking anything for granted here, but there is a market, we have a strong team. We're spending $250 million plus on R&D alone. We have a differentiated channel, literally tens of thousands of feet on the street between our direct sales force and partners and global service providers that's unique in the industry. We're in a good position. I think we're in a good position to continue delivering shareholder value, which is in our book is a combination of growth and shareholder -- returning value to shareholders in other ways as well. Operator: And our next question today comes from Siti Panigrahi with Mizuho. Unknown Analyst: This is Sameer calling in for Siti. I was just wondering, as you make investments in the AI initiatives, how do you balance growth and margin priorities in those? And how does that square off against your overall 20% GAAP operating margin targets? And if you can share like a glide path or kind of like your view into how are you going to achieve those targets, that would be great. Vaibhav Agarwal: Thank you, Sameer, for the question. So look, from an operating margin standpoint, we are very pleased with the trajectory that we've been on for the last 3 to 4 years. We've doubled our operating margins from, call it, 12.5% to almost 23%, 24% now. And Q1 was another proof point of that. I mean we ended the quarter with record operating margin, and we are raising our guide for the full year, further expanding margins now by 100 basis points. And we are doing this while we are investing in innovation. So let's call it the power of and, which is we are growing, investing in innovation and expanding margins and free cash flows at the same time. And the margin expansion is structural. We have -- Vlad talked about a large recurring base. We have a $2.5 billion recurring revenue model, ARPUs are strong, net retention rate is strong, gross margins are high, so that gives us leverage. There is embedded operating leverage in the model wherein our revenue growth continues to outpace expense growth. And it's also driven by disciplined cost management. So we are disciplined in terms of hiring and offshoring vendor consolidation, increasingly using AI within the company, so the margin drivers are structural. We are also looking at operating margins in the context of reducing SBC, GAAP profitability and free cash flow and free cash flow per share. So as you saw, we further reduced SBC this quarter. Our trajectory for this year is going to take down SBC by 200 basis points, and we have outlined the long-term outlook -- sorry, a medium-term outlook of 3% to 4%. So we are well on our way to doing that. As a result, GAAP operating margins are growing faster. In Q1, we are expanding GAAP operating margins by almost 600 basis points. So we ended the quarter at nearly 8%. And this year, we'll be close to 9.5%, doubling year-over-year. So that puts us on a trajectory to get to our GAAP operating margin target of 20% as well. And then these structural improvements, reduction in SBC is also converting into free cash flow and eventually free cash flow per share which we guided to close to $7. And again, as Vlad noted, it's the best in our peer group. So overall, we feel good about how we've guided. We have structural drivers in terms of our recurring revenue model. We have a large base that is very sticky. We have a diversified customer base and an improving GAAP and non-GAAP operating margin profile. So overall, we feel good about where we are. Vladimir Shmunis: I just want to add -- that's right. Thank you, Vaibhav. But I just want to add at a very high level. I think maybe the question behind the question is, hey, isn't AI good for growth, but eating margins. And we don't think that, that's the case necessarily. Customers are willing to pay for AI, if it's good AI. And again, we have this natural, very deep moat with our ability to deliver both AI and human to human at scale globally, okay? And there are -- and we have lots and lots of really smart engineers. And one of their tasks is to optimize AI. In human speak, use the right model for the right job. It's all just a tool set. But with what we're seeing out there in the foundational AI community or ecosystem, and just how fast what used to be a state-of-the-art is no longer the very state-of-the-art, but it's still very, very good. And very soon, a matter of months, it becomes open source anyway. There is just a lot happening. We don't think that AI is going to commoditize or become free or virtually free. But for now, we've been able to keep approximately the same gross margins even for our RCAI products. And we're hoping and also working hard that, that's going to continue. And then everything else that Vaibhav said, we are confident that we will be able to continue growth, continue more AI, which means more stickiness, better ARPUs as well and importantly, continuing our margin expansion and cash flow generation. Fingers crossed. Operator: Our next question today comes from Brian Peterson at Raymond James. Unknown Analyst: This is John on for Brian. I wanted to ask on the free cash flow. Really strong quarter of free cash flow, raised the outlook here. But I think if we look at the trajectory and the potential run rate, it suggests you guys are on path to generate cumulatively like multiple billion dollars of free cash flow over the next several years. So first, am I thinking about the trajectory of free cash flow right as we move forward? And then maybe talk about how you're prioritizing the deployment of capital. And then I have a quick follow-up. Vaibhav Agarwal: Yes. Thank you, John, for the question. Look, again, we are very pleased with the trajectory we have been on. So we now have a consistent track record of expanding free cash flows over the years. 3 to 4 years back, we were a sub-$100 million free cash flow generating company, and we've guided to $600 million, so that's a 6x improvement. And Q1 was another proof point, strong free cash flow, free cash flow per share, raising the guide for the full year, all while again, investing in innovation. And again, the free cash flow that we are driving is because of the structural drivers that I outlined in the previous question. And the other important point to note is that the quality of free cash flows is also improving for us. It's -- our operating margins are converting very closely into free cash flow now due to working capital efficiency. And again, while we are not providing targets beyond 2026, the $600 million of free cash flow gives us a lot of optionality in terms of capital allocation. And I've outlined a disciplined approach there, which is investing in or reinvesting dollars back into the business to fuel innovation. And again, Vlad talked about the traction that we are seeing with our AI products, so we are balancing expansion, free cash flow expansion with investing in growth. We've outlined a target of reaching $1 billion of gross debt by the end of 2026, so that's a second use of cash wherein we are continuing to delever the balance sheet, and we are on our path to doing that. And then at these valuation levels, buybacks remains an attractive opportunity, and we are returning cash in the form of buybacks, which we executed in Q1. We have another approximately $400 million outstanding in terms of our authorization. And we paid our inaugural dividend this quarter, which we expect to continue to do. So overall, I think takeaway is multiple structural drivers, again, to drive free cash flow, both because of the operating leverage and the discipline that we have in terms of costs. And look, we are becoming a compounding free cash flow story that's built on a very durable operating foundation because of the large base that we have built, our recurring customer base and our growing portfolio of AI products. Unknown Analyst: Okay. That was really good color there. And then on GSPs, I did want to ask, it's been a really good growth vector for you guys. I think it's been growing above the sort of the company average there. You guys have been expanding the product set. So can you maybe talk about the early receptivity you're seeing from GSPs around your newer solutions? Maybe what's contemplated in the guidance from GSPs? And maybe talk about like medium-term targets of where that can go to with the new solutions. Vladimir Shmunis: We see good receptivity. I think we even mentioned some of this in the prepared remarks. We're seeing multiple GSPs lining up and now expanding their footprint with us by reselling some or all of our RCAI products. So directionally, we are very, very pleased. It is, of course, very, very early. We are not in a position to change the guide at this point. I would say that they're performing -- it's early. They're performing as expected at this point. And look, our history with GSPs is that they're a wonderful amplifier, but -- and we're the starter engine. We still have to get it working right and tune just right with our direct customers. Fortunately, we have lots of them as well. And then we take this playbook with the GSPs. And then, of course, they have their massive brands and massive networks that they can use to amplify. So I would think that overall, GSP, RCAI in GSP story is probably not so much for this year, but '27, '28 from that. Operator: And our next question today comes from Michael Funk at Bank of America. Michael Funk: Two for you, Vlad. First, wondering how you see the pricing model changing over time with AI? And then also AI related, just wondering if you could talk a little bit about the barriers to competition in AI. What's going to prevent other AI solutions from decoupling your own AI and becoming a competitive threat, whether integration or capability? Vladimir Shmunis: Well, again, taking the second question first, is nothing prevents them except that they don't have this global network that's processing lots of tens of billions of minutes per year and billions of calls and billions of SMS stacks. And we continue our leadership in the UCaaS space, and we are making major inroads in the CCaaS space, now both [ equipped ] with AI. So this is what gives us a pretty strong footing, I think, competitively. And again, what my answer to the very first question on this call was that in the world of hybrid, it's very hard to see any start-up do -- be able to replicate what we have when the job is to get AI agents and human agents on the same platform without getting third parties involved. And that's a huge, huge, huge competitive advantage we feel that we can come in with a turnkey Swiss Army Knife solution and say -- tell customer, look, right tool for the right job and you only get a deal with us. And if nothing else, it gives us pricing power and flexibility because we also don't have any third parties to pay to. And by the way, I do want to double-click, when we talk about RCAI, this is our native AI, okay? So we're not paying -- we're consuming tokens, of course, and we're paying foundational LLMs, but we're not -- when we talk about -- these are not products, third-party products that we sell, okay? Okay. So that's the second part of the question. Sorry, repeat the first one, please? Vaibhav Agarwal: Pricing model. Vladimir Shmunis: Yes, pricing model. Yes. Look, people talk about this a lot. I can tell you what we're seeing. We're seeing, again, more of a hybrid combination model. I think people initially got all excited about, well, it's all going to be outcomes-based. I don't -- not really personally aware of too many people who are actually truly pricing outcomes. If anything, people are pricing usage. But I tell you more and more what's coming into focus, into [ Vogue ] are these hybrid approaches to where there is some minimal commitment the company makes, whether it be seat-based or some other measure, whatever. In our case, maybe minutes consumed or questions answered or something like that. But people need some predictability on both sides of the equation. Customers need some predictability and frankly, providers do as well. And this is what we started out with. So when you look at our, for example, AIR portfolio, it is -- it's very simple. You get -- it's still a monthly subscription plan. You get certain allocation of minutes, so unit of measurement is minutes here. And if you're over that allocation, you upgrade into the next tier or you buy another basket of minutes. What we find with our customers is that a business model that resonates is good for smaller customers because it gives them predictability. And this also works for larger customers because they really have enough analytics to know exactly what they're using. So frankly, for them, it doesn't matter. You can price per seat, per minute. For enterprise, like everybody knows what they're consuming. We know our costs. They need -- they understand their spend. It's all open book anyway. So again, short answer, still hybrid and right tool for the job, depending on... Operator: And our final question today comes from Elizabeth Porter at Morgan Stanley. Unknown Analyst: This is Jamie on for Elizabeth. Great to see the continued momentum that you're seeing with the AIR solution and realizing that it's still super early days for the Pro variant. Just curious how you view the opportunity to maybe upsell some of those existing customers to the Pro tier. Kira Makagon: It's existing customers of both AIR and also non-AIR are both opportunities to upsell AIR Pro. AIR fundamentally is a preconfigured fit-to-purpose agent, very easy to deploy, reception can deploy, meant to do very simple tasks, answer questions, route calls, book appointments. AIR Pro comes to studio and has ability to do much more complex workflows, complex tasks, and they complement each other. So we're right now in the process with AIR Pro being an early access program, open to select customers and seeing those customers actually with AIR also buy into AIR Pro for different use cases, work in tandem, work together. So generally, the 2 products will be sold in parallel out there and one can talk to another as well. Operator: Thank you. That does conclude today's question-and-answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.
Operator: Good afternoon, and welcome to the PennantPark Investment Corporation Second Fiscal Quarter 2026 Earnings Conference Call. Today's conference is being recorded. At this time, all participants have been placed in a listen-only mode. The call will be open for a question and answer session following the speakers' remarks. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If you would like to withdraw your question, press 2 on your telephone keypad. It is now my pleasure to turn the call over to Mr. Arthur Penn, Chairman and Chief Executive Officer of PennantPark Investment Corporation. Mr. Penn, you may begin your conference. Arthur Penn: Good afternoon, everyone, and thank you for joining PennantPark Investment Corporation's second fiscal quarter 2026 earnings call. I am joined today by Jose Briones, Senior Partner at PennantPark. Rick Alordo, our CFO, is unable to be with us today due to a prior commitment. Jose, please start off by disclosing some general conference call information and include a discussion about forward-looking statements. Jose Briones: Thank you, Art. I would like to remind everyone that today's call is being recorded and is the property of PennantPark Investment Corporation. Any unauthorized broadcast of this call in any form is strictly prohibited. An audio replay of the call will be available on our website. I would also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Our remarks today may include forward-looking statements and projections. Please refer to our most recent SEC filings for important factors that could cause actual results to differ materially from these projections. We do not undertake to update our forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website at pennantpark.com or call us at (212) 905-1000. At this time, I would like to turn the call back to our Chairman and Chief Executive Officer, Arthur Penn. Arthur Penn: Thanks, Jose. I will begin with an overview of our second quarter results including a review of the portfolio. I will then share our perspective on the current market environment and how we believe PNNT is positioned going forward. Jose will follow up with a detailed review of our financial results after which we will open up the call for questions. For the quarter ended March 31, core NII was $0.14 per share. As of March 31, our portfolio totaled $1.2 billion. During the quarter, we continued to originate attractive investment opportunities and invested a total of $108 million, including six new platform investments, at a median debt-to-EBITDA of 3.0x, interest coverage of 3.4x, and loan-to-value of only 28%. Our portfolio remains conservatively positioned, with median leverage of 4.7x, median interest coverage of 2.0x, and median loan-to-value of 45%. We ended the quarter with four nonaccrual investments representing 2.7% of the portfolio at cost and 1.3% at market value. Our PSLF joint venture portfolio continues to be a significant contributor to our core NII. At March 31, the JV portfolio totaled $1.3 billion, and over the last 12 months, PNNT's average NII yield on invested capital in the JV was 15.8%. The JV has the capacity to increase its portfolio to $1.5 billion. We expect that with this additional growth, the JV investment will enhance PNNT's earnings momentum into the future. Turning to software exposure, which has been an area of recent market focus, our exposure remains limited at approximately 4.6% of the portfolio and is structured consistently with our core middle market strategy. These investments are primarily cash-pay, covenant-protected loans with moderate leverage and shorter durations. Importantly, they are concentrated in mission-critical enterprise software serving regulated industries such as defense, health care, and financial institutions. We believe this represents a meaningful point of differentiation relative to our peers. Turning to the market environment, we believe that the current environment favors lenders with strong private equity sponsor relationships and disciplined underwriting, areas where we have a clear competitive advantage. In the core middle market, the pricing on high-quality first lien term loans remains attractive, typically ranging from SOFR plus 500 to 550 basis points with leverage of approximately 4.5x EBITDA. Importantly, we continue to get meaningful covenant protections in contrast to the covenant-light structures prevalent in the upper middle market. M&A activity has increased over the past six to nine months, although overall conditions remain uneven. Private equity sponsors remain active, and we are seeing a growing pipeline of attractive opportunities across both new originations and add-on investments. However, activity levels remain below the unusually strong levels observed in 2024 as the market transitions toward a more normalized backdrop. We expect increased transaction activity to drive repayments across the portfolio, including opportunities to monetize equity co-investments, and we will redeploy that capital into income-generating investments. Notably, we expect a meaningful realization from our equity co-investment in Echelon this quarter. Echelon is a leading defense technology company sponsored by Sagewind Capital, our long-term sponsor relationship. Echelon announced that it has agreed to be acquired by Shield AI, another cutting-edge defense technology company. Upon closing, we expect our $1.1 million equity co-investment to generate approximately $16 million in total proceeds. Proceeds will consist of $14 million of cash and $2 million of value in Shield AI stock. This represents nearly a 15x multiple on invested capital and demonstrates the value of our equity co-investment program. Given the current geopolitical environment and the Echelon news, it is important to highlight that approximately 12% of our portfolio is exposed to government services and defense. I would now like to speak about why we believe that our focus on the core middle market provides us with attractive investment opportunities where we provide important strategic capital to our borrowers. The core middle market, companies with $10 million to $50 million of EBITDA, is below the threshold and does not compete with the broadly syndicated loan or high yield markets, unlike our peers in the upper middle market. In the core middle market, because we are an important strategic lending partner, the process and package of terms we receive is attractive. We have many weeks to do our diligence with care. We thoughtfully structure transactions with sensible credit statistics, meaningful covenants, substantial equity cushions to protect our capital, attractive spreads, and equity co-investments. Additionally, from a monitoring perspective, we receive monthly financial statements to help us stay on top of the companies. Our rigorous underwriting standards remain central to our investment philosophy. Nearly all of our originated first lien loans include meaningful covenant protections, a key differentiator versus the upper middle market where covenant-light structures are more common. Since our inception nearly 19 years ago, PNNT has invested $9.3 billion at an average yield of 11.2%, maintaining a loss ratio on invested capital of roughly 20 basis points annually, a testament to our consistent and disciplined approach through multiple market cycles. As a provider of strategic capital, we fuel the growth of our portfolio companies. In many cases, we participate in the upside of the company by making an equity co-investment. Our returns on these equity co-investments have been excellent over time. Overall, for our platform from inception through March 31, we have invested over $618 million in equity co-investments and have generated an IRR of 25% at a multiple on invested capital of 2.0x. Looking ahead, our experienced team and broad origination platform position us well to generate attractive deal flow. We remain steadfast in our commitment to capital preservation and maintaining a disciplined, patient investment approach. We continue to focus on investing in high-quality middle market companies with strong free cash flow generation. We capture that value through first lien senior secured loans, and we pay out those contractual cash flows in the form of dividends to our shareholders. With that overview, I will turn the call over to Jose for a more detailed review of our financial results. Jose Briones: Thank you, Art. For the quarter ended March 31, both GAAP net investment income and core net investment income were $0.14 per share. Operating expenses for the quarter were as follows: interest and credit facility expenses were $8.1 million, base management and incentive fees were $5.6 million, general and administrative expenses were $1.5 million, and provision for excise taxes was $0.5 million. For the quarter ended March 31, net realized and unrealized change on investments and debt, including provision for taxes, was a loss of $11.7 million. As of March 31, our NAV was $6.73 per share, which is down 3.9% from $7.00 per share in the prior quarter. At March 31, our debt-to-equity ratio was 1.35x, and our capital structure was diversified across multiple funding sources, including both secured and unsecured debt. In January, we raised $75 million of new unsecured debt, which was used to repay our unsecured debt that matured on May 1. As of March 31, our key portfolio statistics were as follows. Our portfolio remains highly diversified with 162 companies across 38 different industries. The weighted average yield on our debt investments was 10.9%. The portfolio is comprised of 48% first lien senior secured debt, 2% second lien secured debt, 14% subordinated notes to PSLF, 7% other subordinated debt, 5% equity in PSLF, and 24% in other preferred and common equity co-investments. Eighty-eight percent of our debt portfolio is floating rate. Debt-to-EBITDA on the portfolio is 4.7x, and interest coverage is 2.0x. With that, I will turn the call back to Art for closing remarks. Arthur Penn: Jose, in conclusion, we remain committed to delivering consistent performance, preserving capital, and creating long-term value for all stakeholders. Thank you to our team for their dedication and our shareholders for their continued partnership and confidence in PennantPark Investment Corporation. That concludes our remarks. We will now open the call for questions. Operator: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We will take our first question from Robert James Dodd with Raymond James. Robert James Dodd: Hi, guys. A question about the market outlook, if I could, in three segments overall. You gave some color; conditions are still below what they were last year, etc. Is there any meaningful scenario where activity really accelerates as we go through the year given the level of uncertainty? And then within two subsectors: what are your thoughts on software right now? Spreads are widening, but it is not an area you have typically done a lot of. On the other hand, an area where you have done a lot is government and contracting, where you have a really nice gain lining up. Do you expect the competitive dynamics to change in that segment of the market given how stable and budget talk for defense is looking going forward? That is a lot of the question there. Arthur Penn: Thanks, Robert. I will try to cover the market outlook and software, and I will kick it over to Jose to talk about government services. On M&A flows, we are certainly hopeful. We are seeing some green shoots or more than green shoots; it is just not as robust as it was. It takes a more stable market, we think, to see more volume. We hope there is. Last year, we had a “Liberation Day” kind of spike the punch bowl. This year, whether it is the war or some of the other issues, we are certainly hopeful that we will see a more normalized environment. We are hearing that it will be, but we have heard that before, so proof will be in the pudding. Echelon and some other deals we are seeing are good indications that there is still deal flow. With regard to software, we never really did much primarily because leverage multiples were higher than we were comfortable with. The software that we do have, which is relatively small, is around 4x to 5x leverage. It is certainly not levered 6x, 7x, 8x, or levered against ARR. We are just still not seeing a market that fits our approach, and with AI coming on, there is probably too much secular risk in the system. We are open-minded; we always want to learn. Maybe there will be opportunities in this reassessment of the technology stack. We are open to it, but as always, we want to make sure leverage is reasonable, we can get comfortable that the companies have a strong moat, and that the companies have a real reason to exist long term. Jose, would you comment on government services? Jose Briones: Sure, Robert. Great to hear from you. Government services is a space that we have been involved in for quite some time. It is very nuanced and one we like, where we have long relationships with private equity sponsors that know that space really well. We think it is an area of growth and an area of opportunity for us. The acquisition of Echelon by Shield AI is a great example of that. To the market in general, the first quarter is seasonally slow for our business, and then it usually picks up. With regards to government services and government contracting, clearly given the conflict in the Middle East, there is a lot of emphasis there, and we are still seeing interest and opportunities in that part of the market. Another area that we spend a lot of time with is health care and health care services, as you know, and that is an area that we like and where we see interesting opportunities. Pricing for the market generally has been in that SOFR plus 500 to 550 range. We have not seen much change in that in the past couple of quarters. Our expectation, to Art’s point earlier, is to continue to focus on the areas we like and where we have expertise. Robert James Dodd: Got it. Thank you. One more if I can. It seems like every quarter we are asking, “What is your exposure to or the risk from this?” It was software a year ago; before that, tariffs; now I have to ask about oil and commodity prices. With the uncertainty in the oil markets and supply, I do not think you have a ton of exposure anymore, but what is the portfolio exposure if oil were to go meaningfully higher for a sustained period, or supply issues for that matter? Arthur Penn: It is a good question. As you know, in our history we did oil and gas and that was not a good outcome; that is why we do not do it today—enough said there. You could think of other areas it could impact. Could it impact the American consumer if gas prices are higher? For sure, and consumer is a sector of ours. In most cases, we are doing consumer services that we think are a little less discretionary, like HVAC when your air conditioning breaks and other services around the home. Consumer is a piece of the portfolio; it is not an overweight piece, but it is there. We do not do much in manufacturing—so none of that plastics kind of manufacturing. Paper packaging—we do not really have any exposure there. I would say it is really the American consumer, which is a big chunk of the overall economy. If the American consumer is weaker, that has a lot of other impacts that may happen. That is the closest thing we have to oil exposure. Operator: We will go next to Arren Saul Cyganovich with Truist Securities. Arren Saul Cyganovich: Thanks. On the Echelon transaction, is that going to close in the second quarter? And is the sale price consistent with where it was marked at 3/31? Also, are there any other equity positions that are in talks that might potentially move over the next quarter or two? Arthur Penn: Yes. We think it will close in the next 60 days, and it is marked at fair value at the deal price. On other equity positions, there are a few, although they are less impactful. There is a company called Garage, which was marked at fair value as of 3/31 and has since exited, and there is an equity co-invest there of a few million dollars. We have others that are in the wings. Nothing as meaningful as Echelon, but getting some singles and doubles here and there should be helpful. Operator: We will take our next question from Richard Shane with JPMorgan. Richard Shane: Hey, guys. Thanks for taking my question. I am glad we are not revisiting the whole oil and gas thing; it seems like the last time we were talking, that was a big issue years ago. The question we have been asking everybody this quarter, and I am curious given your focus, is where in the continuum we are in terms of pricing and, more importantly, deal structure. Do your comments mean that you just do not ever see the sort of variance that we might see in the BSL market, and how should we think about this? Arthur Penn: You have the market where many of the large peers play—above $50 million of EBITDA—and that has been covenant-light for a while because those borrowers have options in the broadly syndicated loan market. In that market, those companies only report to lenders every three months. They do not get co-invest, even if they wanted it; and the deal decision-making is much tighter. Our prototypical deal is a company where a founder, family, or entrepreneur is selling to a middle market private equity sponsor, and the company does $10 million or $20 million of EBITDA. The game plan is to take that company, grow it, and do add-on acquisitions to get it to $30, $40, $50, $60 million so that it can then be sold or financed in the upper market. As a result, in our world, our capital is strategic capital. It is usually there with a delayed draw term loan to help fuel growth. We become a strategic partner of the company, management team, and sponsor. Because we are a strategic partner, we have plenty of time to do our diligence. We really understand what we are lending to. We get maintenance covenants—quarterly tests that need to be met contractually. We get monthly financial statements. We have the option, and in many cases we take the option, to co-invest in the equity because if we are helping to create the equity value with our loan, why would we not participate in the upside? Echelon is an excellent example. You can see the benefit of having something in the portfolio with some lift that can offset the inevitable nonaccruals you have. We all have nonaccruals—there is no private credit manager that is perfect. You try to develop a diversified book and minimize nonaccruals, but you are going to have them. Having some equity co-invests in these portfolios is helpful to fill in those gaps. We are operating in an entirely different world than the upper market. It does not make sense for the business model of those folks to come down and spend their time on companies of this size given their check sizes. If you are managing $100 billion or $200 billion in private credit, it just does not make sense to be focused on this end of the market. Therefore, there are only a handful of real competitors we have below $50 million of EBITDA. Richard Shane: That helps on the asset side. Curious on the funding side if there is anything we should be thinking about. Banks have been very reliable partners in the space, but you always do wonder about selectivity of credit. Are you seeing any opportunity or any risk on the financing side? Arthur Penn: Having started our business right before the global financial crisis, we learned very early that lender transparency and relationships are key, and they become our partners. We are always reaching out to our lenders and offering to bring them in and transparently go name by name. When headlines about private credit started to come out a month or two or three ago, we proactively reached out to every one of our lenders and said, “Come on in. We will walk through, loan by loan, what is going on in our portfolio.” We feel really good about it and believe we have underwritten a very solid book. The vast majority of the lenders said to us, “You do not have much software exposure; you are way down on our list of who we are going to visit. We have plenty of other people to see.” We are always doing that—out with our lenders, developing relationships. As you know, at PNNT we have different types of debt capital. We have traditional credit facilities, we have bonds, and we have securitizations that we use. They are all useful tools, and we have a diversified strategy of using all three. Operator: We will go next to Christopher Nolan with Ladenburg Thalmann. Christopher Nolan: Jose, do you know the reason for the drop in total interest income quarter over quarter? Jose Briones: Let me come back to you on that. We can follow up. No problem at all. Arthur Penn: I heard the question. Eric Leeds is here from our finance department. Eric, do you have anything you would like to add on that? Unknown Speaker: Basically, the smaller average portfolio over the quarter, I believe. Arthur Penn: Great. We ended up generating $0.14, and I think consensus was $0.15, but we are certainly happy to go into the detail with you, Chris, if you would like. Christopher Nolan: In general, are you seeing a migration of portfolio companies from high tax states to lower tax states at all, and any thoughts? Arthur Penn: No. We have a very diversified portfolio geographically around the United States. We tend to lend to companies that are growing, wherever they may be, but we have not seen movement of headquarters given what is going on. Christopher Nolan: Got it. Thanks. Operator: At this time, there are no further questions. I will now turn the call back to Art for any additional or closing remarks. Arthur Penn: Thank you, everybody. We really appreciate everyone's participation today. Wishing everyone a happy Mother's Day, and we look forward to speaking to you next in early August at our next earnings report. Thank you very much. Operator: This does conclude today's conference. We thank you for your participation.
Operator: Good day and welcome to the PPL Corporation First Quarter 2026 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the appropriate key. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Andrew Ludwig, Vice President of Investor Relations. Please go ahead. Andrew Ludwig: Good morning, and thank you for joining PPL Corporation's conference call on first quarter 2026 financial results. We provided presentation materials on the Investors section of our website. This morning, you will hear from Vincent Sorgi, PPL Corporation President and CEO, and Joseph P. Bergstein, Chief Financial Officer. We will conclude with a Q&A session following our prepared remarks. Before we get started, please turn to Slide 2 for our cautionary statement. Today's presentation contains forward-looking statements subject to risks and uncertainties. Actual results may differ materially. Please refer to our SEC filings and the appendix for additional information. We will also refer to non-GAAP measures including earnings from ongoing operations. Reconciliations to the corresponding GAAP measures are provided in the appendix. I will now turn the call over to Vincent Sorgi. Vincent Sorgi: Thank you, Andrew, and good morning, everyone. Let us begin on Slide 4 with an overview of our first quarter performance. Overall, we delivered strong financial and operational results in the first quarter, reflecting disciplined execution across the enterprise. Today, we reported first quarter GAAP earnings of $0.60 per share. Adjusting for special items, ongoing earnings were $0.63 per share. Based on these results and our outlook for the remainder of the year, we are reaffirming our 2026 ongoing earnings guidance of $1.90 to $1.98 per share, with a midpoint of $1.94 per share. We also remain on track to complete approximately $5.1 billion of planned investments in 2026, supporting the delivery of safe, reliable, and affordable energy for our customers. Longer term, we continue to project approximately $23 billion of capital investment through 2029, resulting in average annual rate base growth of 10.3%. This capital projection excludes any investments that may stem from our joint venture with Blackstone, which I will provide an update on shortly. We are also reaffirming our long-term financial targets, including 6% to 8% annual EPS growth through at least 2029, with compound annual growth expected near the top end of that range. We also continue to target annual dividend growth of 4% to 6%, along with strong credit metrics throughout our plan period, which support a very compelling risk-adjusted total return for our shareowners. Overall, our quarterly results position us well to deliver on our 2026 targets and beyond. Moving to Slide 5 and some notable regulatory and business updates. During the quarter, PPL Electric Utilities reached a constructive settlement with the majority of the intervenors in the distribution base rate case. Remember that we filed this rate case in the third quarter of last year, following more than ten years since our last base rate case filing. Our filing reflected the results of effective cost efficiency and prudent investments over that period that have delivered significant value for our customers while keeping O&M increases 25% below inflation. The settlement achieves a balance between strong commitment to affordability and maintaining safe and reliable service for our customers, while supporting the significant demand growth in our service territory with large load customers. Importantly, the settlement would result in bill increases that are less than 4% across all customer classes, despite staying out for those ten years, and it keeps our delivery rates among the lowest in the state. We have also agreed to a two-year stay-out following implementation of the new base rate. The settlement enhances support for vulnerable customers by increasing hardship fund bill credits, improving access to assistance programs, eliminating reconnection fees, streamlining return of security deposits, and boosting the annual low-income weatherization budget. We also created a new large load customer rate class and electric service tariff that includes key protections for our other customers, such as a ten-year load requirement and various financial commitments. The proposed tariff and rate class would also provide approximately $11 million annually in support of our residential low-income programs. Put together, the elements of this settlement would provide tremendous value for our customers by ensuring they receive safe, reliable, and affordable electric service. On April 17, we were pleased that the administrative law judges recommended approval of the settlement without modification. We expect the final decision from the Pennsylvania PUC by June, with new rates effective July 1. In Kentucky, LG&E and KU were granted reconsideration of decisions made by the Kentucky Public Service Commission regarding its base rate case earlier in Q1. As discussed in February, we expect the current decision by the KPSC will allow us to deliver on our overall plan objectives. However, as outlined in the reconsideration request, we continue to believe, along with many of the intervenors, that our negotiated settlement was a better outcome for all parties, including our customers, and it should not have been modified. The reconsideration focuses on a limited number of substantive issues, including such modifications the KPSC made to the settlement and certain cost recovery and return determinations. Importantly, while LG&E and KU's petitions were granted rehearing by the KPSC, all intervenor requests were denied. A procedural schedule has been set by the KPSC, with the additional discovery projected to conclude by May 22. Parties have until May 26 to request a hearing, or to ask for a decision based on the record in the case. We hope to get a decision by the KPSC in the third quarter. Also in Kentucky, we are excited to announce a couple of new partnerships to explore innovative generation technologies in support of the increasing electricity demand in our service territory. Last month, we announced our partnership with Rye Development to evaluate a new 266 MW pumped storage hydro project that Rye has been working on in Bell County. The project converts former coal mine land in Eastern Kentucky into a reliable energy storage facility, providing up to eight hours of storage upon COD currently projected for 2031. Rye has secured preliminary federal permits at this stage, with final licensing projected for 2027. The project's initial cost estimates are approximately $1.3 billion, which excludes potential eligibility for a 50% investment tax credit. This project is not in our current capital plan or earnings projections. If constructed, this would be the first project of its kind in Kentucky, and one of the first newly built pumped storage projects in the United States in more than thirty years. I am also excited to highlight our collaboration with X-energy, a leading designer of advanced nuclear reactors technology and manufacturer of advanced nuclear fuels, which we announced just last week. This collaboration will explore deploying X-energy's Xe-100 small modular reactor in Kentucky to support large load customers, including data centers, with long-term, reliable, and carbon-free electricity. Through this collaboration, we aim to support the significant activity and interest in Kentucky to explore nuclear generation, bolstered by recently enacted legislation supporting nuclear development. This legislation supports early site development through a $75 million grant program that helps fund development costs for up to three sites across the state, at $25 million per site. It also enables utilities to apply for recovery of other early site work that is not covered by the grant program. We currently expect early site permitting will cost less than $75 million to complete, most of which is anticipated to be funded through the grant process as well as our project partners. As you would expect, we are approaching potential new nuclear development in Kentucky with a disciplined, phased approach. That means starting with early-stage evaluation and site readiness work, closely aligned with state policy support, clear customer demand and financial support—particularly from large load customers—and cost recovery frameworks that protect customers and shareowners. Any decision to move forward would be gated by economics, regulatory certainty, and our longstanding commitment to capital discipline. Both the Rye Development and X-energy partnerships reflect innovative approaches to bring large carbon-free electricity generation to Kentucky in a manner that supports customer affordability and long-term system reliability as electricity demand continues to grow. Turning to Rhode Island updates on Slide 6. Rhode Island Energy received approval for over $330 million of critical infrastructure investments through its latest annual electric and gas ISR plan. The approval represents the vast majority of what we requested in our original filings. Recovery on these investments began on April 1, with rider recovery helping to limit regulatory lag. The latest plans fund core investment in vegetation management work to strengthen day-to-day reliability and system resilience. It is clear these investments are providing tangible benefits to customers, as reflected in our excellent operational performance, including Rhode Island Energy's ongoing top-quartile reliability metrics and its strong execution during this winter's major storms. During the region's most severe storm of the season in late February, which brought nearly 40 inches of snow and hurricane-force winds, the Rhode Island Energy team excelled, performing better than any other utility in New England. Electric crews restored power to 99% of customers within 48 hours, while our gas crews responded to hundreds of emergency calls to ensure customers had gas service for heat during record-setting winter demand. These efforts did not go unnoticed, as our teams were honored by the Rhode Island House of Representatives in March for their response to this historic blizzard. These results reinforce the strong connection between sustained investments and outcomes that matter most to our customers. That is precisely what our Rhode Island base rate case is about. The rate case was filed in 2025, requesting a revenue requirement increase over two years—$181 million in year one, and an additional $49 million in year two. The proceeding remains on track, with intervenor testimony filed in April and evidentiary hearings planned for June and July. New rates are expected to become effective September 1. In addition, Rhode Island Energy recently filed a new hold harmless commitment proposal that is expected to provide bill credits that would significantly offset the impact of the proposed base rate increase for our customers. As a reminder, this proposal addresses PPL Corporation's deferred tax hold harmless commitment arising from the acquisition of Rhode Island Energy, accelerating the payment of related bill credits to support affordability in the near term. We expect new bill credits to be provided to customers starting in 2027. This approach is representative of how we engage across our jurisdictions—using the tools available to us to support affordability today, while continuing to attract the investment needed to maintain a safe, reliable energy system for our customers. Turning to Slide 7 and a data center update in Pennsylvania. We continue to see significant growth in data center development across our PPL Electric Utilities service territory, driven by location, access to power, and an advanced transmission system that enables speed to market for hyperscalers. Projects in advanced stages of planning now total 28.3 GW, up another 12% from the 25.2 GW we discussed on our year-end update call. As a reminder, projects in advanced stages have executed agreements—either letters of agreement or electric service agreements—with meaningful financial commitments from developers attached to them. Of that total, about 10 GW now have signed ESAs, consistent with our expectations. This includes contracts with some of the leading companies in this space, including QTS, AWS, PowerHouse, CoreWeave, and others. Meanwhile, 5 GW of the projects in advanced stages are already under construction. These are critical proof points that demand is not only real, but continues to grow and progress forward. As we have discussed on prior calls, our ESAs include strong customer protections such as prepayments, credit support, and minimum load obligations, to ensure that developers—not existing customers—bear the financial risk if projects do not proceed as planned. Those same principles are reflected in the proposed new large load customer rate class and the electric service tariff in PPL Electric's rate case settlement. Importantly, under our tariff structure, the incremental load growth improves system utilization and lowers transmission costs for existing customers. Taken together, this reflects our balanced approach to data centers and our firm belief that data center development can strengthen the grid and lower costs for all customers, all while delivering significant local benefits including jobs, tax revenue, and community investment. Let us turn to Slide 8. Kentucky continues to experience strong economic development activity as well, driven by both data centers and advanced manufacturing. The Commonwealth overall, and LG&E and KU service territories in particular, remain a highly attractive environment for energy-intensive growth, supported by our competitive energy costs and reliable service. Our current Kentucky development pipeline now reflects 12.9 GW of potential new load through 2032, an increase of nearly 4 GW from our year-end update. New data center requests make up the majority of the increase, with 13 new projects expressing interest in our service territory. In total, we have active requests for almost 12 GW of data center demand. Roughly a third of those projects are considered highly active with transmission service studies underway, of which about 650 MW are currently under construction or agreement. At the same time, we are also seeing continued growth in manufacturing, with automotive and other non–data center projects adding important diversity to the mix. During the first quarter, Global Laser Enrichment and Toyota Motor Manufacturing announced approximately $2.6 billion in combined investment plans within our service territories. Based on our updated planning assumptions, we now project approximately 3.5 GW of expected new load by 2032, compared to about 1.8 GW assumed in our most recent CPCN forecast. As new load materializes, additional generation resources will be required to maintain reliability. LG&E and KU could be in a position to file another CPCN as early as this year. We remain focused on ensuring that new demand is paired with timely resource additions, protecting customers, supporting reliability, and positioning the system to serve the Commonwealth's long-term economic development needs. Turning to Slide 9 and an update on our joint venture. Momentum continues to build around our Blackstone joint venture. This is driven by the rapid data center growth in Pennsylvania that I just discussed, combined with increasing expectations that large load customers need to bring dedicated generation solutions online in support of their load requirements. This is also supported by the ratepayer protection pledges made by both hyperscalers and some of the large third-party data center developers. Our joint venture was intentionally built for this moment. Interest from hyperscalers and developers remains high, and as I previously mentioned, we are working with all the major customers in this space. The joint venture continues to do much of the upfront development and coordination work so it can move quickly once commercial arrangements are finalized with the hyperscalers. We are engaged in strategic discussions with key gas pipeline companies focused on ensuring access to low-cost Marcellus Shale gas for our future generation projects. Based on the progress to date with the hyperscalers, we are executing multiple gas turbine reservation agreements and have submitted requests for multiple generation projects into PJM's interconnection queue for certain land sites currently under our control. We are continuing to evaluate additional strategic land parcels to expand access to key sites for further generation development. We are doing all of this with deliberate financial and execution discipline. As we have shared previously, we will not build without signed energy supply services agreements, or ESSAs, and our commercial structures will continue to support a utility-like risk profile through long-term contracts. Our JV continues to be a disciplined generation platform to help meet significant new demand while supporting customer affordability and system reliability. While our current business plan does not include earnings contributions or capital investments from the joint venture, the progress to date meaningfully increases the probability of JV-owned generation over time. We are excited about the progress we have made and look forward to providing you with more updates as contracts are finalized. I will now turn the call over to Joseph P. Bergstein for our financial update. Joseph P. Bergstein: Thank you, Vincent, and good morning, everyone. Let us turn to Slide 11. PPL Corporation's first quarter GAAP earnings were $0.60 per share, compared to $0.56 per share in Q1 2025. We recorded special items of $0.03 per share during the first quarter, primarily due to an ISO New England transmission ROE reduction as well as customer system and meter system integration impacts, partially offset by regulatory asset treatment of costs associated with PPL Corporation's IT transformation in Kentucky. Adjusting for these special items, first quarter earnings from ongoing operations were $0.63 per share, an improvement of $0.03 per share compared to Q1 2025. The increase was primarily due to higher base rate recovery in Kentucky and higher transmission revenues from additional capital investments, partially offset by higher depreciation and higher financing costs. Our solid first quarter results keep us on track to achieve at least the midpoint of our 2026 earnings forecast of $1.94 per share. We also continue to maintain one of the strongest credit ratings in our sector, with a balance sheet that provides the company with significant financial flexibility that benefits both customers and stakeholders. In February, we successfully executed a $1.15 billion equity units offering, with a purchase contract for PPL Corporation common shares settling in February 2029. This offering provides a clear path to permanent equity, while allowing participation in share price upside. Following this transaction, we have now de-risked about two-thirds of the total equity needed to support our current capital expenditure plan. For the remaining equity needs, our base plan is to utilize the ATM, which remains an efficient financing tool. We will also continue to be opportunistic with other equity-like financing structures to the extent that they provide a lower cost of capital. Turning to the ongoing segment drivers for the first quarter on Slide 12. Our Kentucky segment results increased by $0.03 per share compared to 2025. The improvement in Kentucky's results was primarily due to higher base rate recovery from new retail rates that were effective on January 1. This was partially offset by lower sales volumes due to less favorable weather than experienced in Q1 2025, higher operating costs, higher depreciation, and higher interest expense. The remainder of our segments were flat compared to 2025. Our Pennsylvania regulated segment results were driven by higher transmission revenue from additional capital investments, offset by higher operating costs, higher depreciation expense, and higher interest expense. Our Rhode Island segment results were driven by higher rider revenue returns, including investment recovery through the ISR mechanism and FERC formula rates. These favorable items were offset by higher depreciation expense. Lastly, results at Corporate and Other were driven by higher interest expense, offset by several factors that were not individually significant. Overall, we are off to a strong start in 2026, with solid performance across our business segments and a clear line of sight to achieve our financial objectives. Our capital investment plan remains firmly on track, positioning us to continue to strengthen system reliability, modernize the grid, and provide an improved experience for our customers. At the same time, our strong balance sheet and business plan position PPL Corporation to confidently achieve our growth targets and deliver strong, stable returns for our shareowners, with meaningful upside opportunities beyond the plan. This concludes my prepared remarks. I will now turn the call back over to Vincent. Vincent Sorgi: Thank you, Joseph. Before we open it up for questions, I will leave you with a few closing thoughts. Here at PPL Corporation, we are executing with discipline—delivering strong first quarter results, reaffirming our guidance and long-term financial targets, and continuing to invest responsibly in the systems our customers and communities rely on. Across our jurisdictions, we are advancing constructive regulatory outcomes that balance affordability today with the investments needed for long-term reliability and growth. Affordability is a top priority for us, including here in Pennsylvania. We have been talking about this for over five years now and made it a cornerstone of our utility-of-the-future strategy. So we are not surprised at all by what we are seeing in various states where elected officials are very focused on affordability for their constituents. That is why we have consistently taken actions to drive efficiency across the business, maintain cost discipline, employ technology to optimize our assets, and limit base rate increases—all while continuing to improve service. A perfect example is our rate case settlement in Pennsylvania, where we had not filed a rate case in over ten years, and the bill impact of our settlement will be less than a 4% increase for all rate classes, which again puts our delivery rates among the lowest in the state. We do not just talk about focusing on affordability; our actions support our words. We have been very effective at delivering excellent service for our customers at a reasonable price and, at the same time, competitive returns for our shareowners. We fully expect to continue to deliver on both of those areas going forward. At the same time, and related to improving affordability, our economic development pipeline continues to progress, with projects moving from planning into agreements, construction, and execution. That demand is supporting new investment opportunities and partnerships, like those we announced with Rye Development and X-energy, focused on delivering reliable, cost-effective generation solutions that—done right—will lower energy costs for our customers. We are also excited by the continued momentum with our joint venture with Blackstone Infrastructure. We believe it positions us very well to meet growing generation needs in PJM in a way that will lower customer bills, improve system reliability, and deliver long-term value creation for our shareowners. As you can hear, we do not view growth and affordability as competing objectives. Done right, incremental load, disciplined investment, and thoughtful generation development can improve system utilization and help lower overall customer cost. That is the approach we are taking, grounded in regulatory credibility, capital discipline, and a clear focus on delivering safe, reliable, and affordable energy while creating long-term value for our communities and our shareowners. We will now open the call for questions. Operator: We will now begin the question-and-answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Jeremy Bryan Tonet with J.P. Morgan. Please go ahead. Jeremy Bryan Tonet: Hi. Good morning, and thanks. I wanted to start off with the Genco JV, if you could. It seems like there is really good positive momentum happening here. Can you help frame the timeline for when this could come together? Is this weeks, months, or quarters? Any color on how the timeline could unfold? Vincent Sorgi: Your question is timing around when we might sign contracts or ESSAs? We have made a lot of progress, certainly over the last year, and we are really encouraged by the most recent momentum. As we have been talking about for months now, hyperscalers are going to need to pay attention to generation. Up until very recently, they were very focused—rightfully so—on getting connected to the grid. That time has come now that they are focused on generation, and we are very pleased that we started this joint venture over a year ago when we did, because we have laid the foundation to be ready to meet the moment when the hyperscalers are taking this seriously. They clearly are, given the ratepayer protection pledge and all of the activity around that. In terms of timing, we are continuing to work through the process of getting ESSAs in place. The trajectory is clearly positive. I would say it is likely that we would have something meaningful to announce this year. These are very complex agreements that have to go through a lot of different parts of the hyperscalers to get to the finish line and then ultimately announce. Based on where we stand today and the momentum we are seeing, I would be surprised if we were not announcing something meaningful this year. Jeremy Bryan Tonet: Got it. That is very helpful, thank you. Turning to Slide 7, there is a lot of data on the data center backlog. How much of the data center growth on Slide 7 is incremental to the current earnings and capital plan? Vincent Sorgi: In our updated plan that we came out with in February, we had about $1.3 billion for incremental transmission CapEx. When we look at the 28 GW, I would say there is probably another $500 million at least to serve that incremental demand. Some of that would extend beyond the current plan period in 2029, but it is at least another $500 million of upside beyond what is in the current plan. Jeremy Bryan Tonet: Very helpful. Lastly, on the RBA, any thoughts on the impact if it goes through as proposed for PPL Corporation, both on the EDC side as well as if the Genco JV might have interest there? Vincent Sorgi: We support PJM's conceptual process for focusing on and starting with bilateral contracting. That is why we created the joint venture. But there is quite a bit of work that needs to be done to ensure that the costs related to any backstop auction are borne by the large loads they are intended for, and that our other customers do not end up getting allocated those costs through some unintended consequence or allocation methodology. It is not clear, as proposed, that we would get that result. I am optimistic we can get there, but there is work to do with both PJM and FERC. If the proposal was approved by FERC as is, at PPL Electric Utilities we would need to work with the state to ensure we have protections either contractually or otherwise to ensure the EDC is not shifting the risk or the cost of that auction to our other customers. In terms of participation, it depends on the final rules and whether EDCs are mandated to participate. If it is approved as proposed, we would need to do state-level work to get those protections, and that could impact our desire to participate at the EDC level. For the JV, this could be an opportunity, again depending on the ultimate rules, but our priority continues to be our very active bilateral process. We are not slowing down with the JV. We will see if there is an opportunity to participate in the auction once the rules are finalized. Jeremy Bryan Tonet: Got it. That makes sense. Thank you. Operator: Our next question comes from Paul Andrew Zimbardo with Jefferies. Please go ahead. Paul Andrew Zimbardo: Good morning, and thank you for the time. I think you said multiple slot reservations in your queue. Any color you want to put around that—is it two, bigger than two? And what is the timing on delivery for those pieces of equipment? Vincent Sorgi: Given the competitive nature here, I am not going to get into a lot of detail. I will say confidently that our submittals into the PJM queue are backed by land that is under our control for all of those submittals—multiple generation projects—which positions us very well to be competitive with the joint venture. On turbine reservations, we have sufficient quantity to support what I just said on the interconnection queue. Paul Andrew Zimbardo: Understood. Shifting to the Pennsylvania electric utility, assuming the settlement is approved, I know you have a stay-out. Any timeframe when you think you need to go back in, or could you rely on the DISC mechanism to stay out for more than a couple years? Vincent Sorgi: Embedded in the settlement, we have a two-year stay-out from the date new rates become effective, which we expect to be July 1. We would not need anything between now and two years out. We stayed out for ten years prior through our financial and cost management discipline. We continue to look at ways to drive cost out of the business. AI is a new wave of opportunity. We are embarking on our system consolidation that will drive cost savings over time as well. We are in the middle of that work, so how much of that shows up by mid-2028 when the stay-out expires, we will see. But it will be a focus to stay out as long as we can, similar to last time. Paul Andrew Zimbardo: Great. Thanks a lot. Good luck. Vincent Sorgi: Thanks, Paul. Operator: Our next question comes from David Arcaro with Morgan Stanley. Please go ahead. David Arcaro: Hey, thanks. Good morning. Curious about your reaction to the contents of the governor's letter—different approaches proposed around ROE, debt and equity ratios, etc. How are you interpreting and reacting to that? Vincent Sorgi: In general, we share the same ultimate goals as our governor: delivering safe, reliable, affordable energy for our customers. We have been talking about affordability for several years, before most of the industry was focused on it. It is why we have focused on cost control and made investments around automation and hardening that reduce O&M over time. That has enabled us to stay out of base rate cases for over a decade. We only seek rate increases when it is absolutely necessary to maintain safety and reliability. We will continue to operate in that way to improve service affordably and provide competitive returns to our shareowners. We think we can continue to do that even under the points in the governor's letter. It is evident in our settlement after a decade with only a sub-4% increase for our customers. The governor had some concerns with other EDCs in the state, but we are very well aligned. We will continue stakeholder engagement with him, the PUC, and the special counsel assigned by the governor. I am not concerned that we need to alter our stance in Pennsylvania. It remains a great jurisdiction where we can invest, earn reasonable returns, and deliver for our customers. David Arcaro: Thanks, that is helpful. Shifting to Kentucky, as you see the load projection increase, what might that mean for generation resources? Timing of when you would need new generation, and whether it is peak or baseload—what options are under consideration? Joseph P. Bergstein: On the resource needed, that will ultimately be dependent on the customer, the load ramp, and how quickly it is coming online, given the time to bring different types of resources online. From a CPCN timing perspective, it will be driven by how quickly large-load demand converts and the visibility we have into that load ramp. Importantly, we have about $4 billion of generation projects approved and under construction. We want to see that existing pipeline advance before layering on incremental generation investments. That said, with probability-weighted demand growth at about 3.5 GW compared to 1.8 GW in our prior CPCN, it is becoming more likely that we file another CPCN later this year, especially if we get one or more hyperscalers committed to a significant load ramp. Vincent Sorgi: I would add that momentum is headed toward it being more likely we will file this year. With $4 billion in flight, we want to be judicious about adding more generation, but with a probability-weighted 3.5 GW versus 1.8 GW in the current CPCN, it is almost twice the load. As we start to see hyperscalers back the projects currently under construction by developers, the battery likely comes back in first as the quickest asset we can get online. Beyond that, the Rye Development project and potentially additional gas generation could be needed depending on how far we go between 1.8 GW and 3.5 GW at the time we file. One to maybe three projects could show up in a CPCN based on the current load profile and momentum. Given what we are seeing now, that could happen by the end of the year. David Arcaro: Great. That makes sense. Thanks so much. Operator: Up next, we have Shahriar Pourreza with Wells Fargo. Please go ahead. Analyst: Hi, it is Andrew Gadavy on for Shahriar. Thanks for taking my questions. We talk a lot about the supply driving affordability issues in Pennsylvania and the possible solutions that PPL Corporation can provide. Do you see any parallels for the situation in Rhode Island? Are you considering pursuing generation there? Vincent Sorgi: There is proposed legislation in Rhode Island to enable the utility to own generation again, which we support. There are similar issues: gas constraints into New England are clearly one cause. There is recent activity to increase gas transmission into New England, particularly coming up through our area, including projects to increase volumes on existing pipelines. We have taken an offtake on one such project. New England uses high-price, high-volatility LNG quite a bit. Bringing in additional Marcellus Shale gas, which is less volatile, can help lower volatility and overall price. Environmentally, Rhode Island still has significant amounts of energy coming from fuel oil, delivered by barge and trucks. Displacing that with cleaner natural gas provides a significant environmental benefit, which aligns with state and regional policy focus on carbon and other environmental benefits. There are win-wins by increasing gas flow, and there is a lot of activity around that which we are directly and indirectly supporting. Analyst: Thank you, that is helpful. On the retroactive refunds from the FERC ROE determination in New England—if that long period of refunds stands through court challenges, does that affect how you think about capital allocation to transmission going forward? Vincent Sorgi: On the refunds, we are not going to wait until May 2027—the extension date. Our refund is around $2.526 billion. Our plan would be to engage with the commission in conjunction with the rate case and the hold harmless, and time those refunds and put it all in one package for our customers in conjunction with the rate case. As to whether the precedent changes capital allocation, I do not think so. We are talking tens of millions of dollars of exposure for us. The New England TOs filed their 205s for higher ROEs going forward. I am not worried about capital allocation in Rhode Island at all. It remains a great asset and jurisdiction. We will continue to use creativity and innovation—regulatory and physical—to help take pressure off wholesale power markets, supporting affordability while delivering competitive returns for our shareholders on the investments we are making there. We remain as bullish on Rhode Island as when we bought it. Analyst: Great. Thank you. I will leave it there. Operator: Our next question comes from Michael Logan with Barclays. Please go ahead. Analyst: Hi, thanks for taking my question. For the Blackstone JV, you highlighted good progress on the gas side—engagement with pipeline companies and reserving turbines. Last earnings, you talked about alternative generation solutions that could come online sooner but did not point to specific technology. Anything you could share now on technology type and progress? Vincent Sorgi: It depends on what the hyperscalers ultimately want, since they will be the offtake on the ESSAs. If they need new generation to ramp with their load schedule, most likely we would do that with batteries. Some alternative forms of energy have timelines getting pushed closer to where CCGTs are, so batteries—and maybe fuel cells—are really the technologies we can bring online sooner. Ultimately, the hyperscaler will determine if and how much they want prior to backstopping the larger CCGT. Some want generation to come online in line with their ramps; others are more comfortable relying on the current PJM fleet initially and just want to ensure they get enough when they are at full ramp. We are working those on a one-off basis with customers. Analyst: Thanks. Sticking with the JV, can you help us think about the returns on those projects? My understanding is they would be above utility returns—anything more precise you can share? Vincent Sorgi: The way we have discussed it at a high level is all we are willing to share at this point. Operator: Our next question comes from Paul Patterson with Glenrock Associates. Please go ahead. Analyst: Good morning. A few quick ones. On affordability, there have been legislative proposals in Pennsylvania to enable regulated generation or long-term contracting. Is there any progress there, given the governor’s concerns and potential benefits to wholesale markets? How does that stand as an opportunity for you and the state? Vincent Sorgi: There is proposed legislation to incentivize new generation—either through long-term contracts between utilities and IPPs, or as a backstop allowing utilities to build and own generation again. Those bills in the House and Senate are in committee and have not come out. Given recent PJM activity around a backstop auction and their new market design document with options to help promote building new generation while maintaining affordability, my sense is the legislature will want to see how market dynamics shake out before pushing that legislation through the broader legislature. I would not expect anything near-term. We continue to support it, but we are not waiting for it. We are actively pursuing generation with the Blackstone JV to provide needed generation, which is consistent with both the backstop auction goals and the market design ideas PJM just put out. That is where our focus is. Analyst: That makes sense. You have mentioned a unique competitive advantage with your advanced transmission systems. You have been involved in DLR. Could you elaborate on what makes you unique and why you feel you have a competitive advantage in transmission? Vincent Sorgi: On grid-enhancing technologies, we were one of the first utilities in the country to deploy dynamic line rating and the first—and may still be the only one—to have integrated DLR into PJM’s day-ahead market. Not only are we using it for transmission planning, but PJM is using it to identify live system constraints. Large load customers ask whether we have DLR on our lines that would support them and whether we could add it if not currently in place. The bigger advantage is the decade of investment in our transmission grid in Pennsylvania. Driven by reliability, we created one of the most reliable and most automated grids. In going from wood to steel and other upgrades, we upsized lines, creating additional capacity that enables us to connect very large loads quickly. When we connect a gigawatt-scale customer, we are not doing zero upgrades, but the time and cost are significantly lower than some peers. At the current 28 GW, to add a gigawatt we are spending less than $150 million total. Hyperscalers are directly paying more than half of that under ESAs and, soon, under the new tariff. The remainder goes into the formula rate, which provides broader grid benefits. Some grids are spending $1 billion or more to connect a gigawatt. So, for relatively little money, with unrivaled connection times, that is our primary competitive advantage, with DLR as icing on the cake. Operator: Our next question is from Anthony Crowdell with Mizuho. Please go ahead. Anthony Crowdell: Good morning, team. Thanks for squeezing me in. A couple of easy ones. In PJM for bring-your-own-generation plans, do they have to be located adjacent to the data centers, or can they be located anywhere in PJM? Vincent Sorgi: In the backstop auction, they do not necessarily need to be colocated or near the data centers. Obviously, with our Blackstone strategy, they will be proximate to the load. Anthony Crowdell: Lastly, you are unique in pursuing a JV with Blackstone in a wires-only region of Pennsylvania and having a fully integrated utility in Kentucky. When you talk to hyperscalers, is there any preference for one region versus the other, given the different structures? Vincent Sorgi: In Pennsylvania, when you draw a radius around where we are, you pick up massive industrial and business populations. If you are worried about latency and need five-nines reliability, you go where the population is. With AI and large learning models, more load can be sited anywhere; Kentucky, with much less population, offers low power prices and we control our destiny across the value chain—subject to commission approval—in an integrated utility. Hyperscalers like that we can control everything, but it is a different type of data center than in Northeast Pennsylvania. We can also offer benefits for those thinking about Boston, given our proximity via Rhode Island. Anthony Crowdell: That is all I had. Thanks. Operator: Our next question comes from Ryan Levine with Citi. Please go ahead. Analyst: Thanks for taking my question. Given the new PJM CEO's letter and related report, any thoughts around some of the ideas proposed and the future of the capacity auction? Vincent Sorgi: It is good to see PJM recognize the issues we have been talking about for a couple of years and acknowledge that the current market construct will not solve PJM’s supply issues. Several proposed solutions are consistent with our views, including large loads bringing their own generation or being interruptible until they do. We have advocated for that as well. It can enable speed to market while taking pressure off reliability and high capacity costs until BYOG comes online. I do not see anything in that market design report that replaces BYOG; it could provide a bridge to it. On capacity options, I want to see how details shake out. Part of the issue has been the marginal price being paid to all generation in energy and capacity, contributing to current problems. The report hints at approaches to address that. There was mention of possibly moving toward an ERCOT-like model—details matter. At the end of the day, we must ensure generators earn reasonable returns on investments while keeping wholesale prices affordable for customers. The market is moving toward bilateral contracting, and it is good that hyperscalers have signed the ratepayer protection pledge. That will help. PJM still needs to refine the capacity market to balance reasonable generator returns against affordability, and it seems that is the direction, which is good to see. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Vincent Sorgi, President and CEO, for any closing remarks. Vincent Sorgi: Great. Thank you, everyone, for joining us. We look forward to seeing folks out on the circuit. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Rocket Lab Corporation Q1 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Murielle Baker. Please go ahead. Murielle Baker: Thank you. Hello, and welcome to today's conference call to discuss Rocket Lab's First Quarter 2026 Financial Results, Business highlights and other updates. Before we begin the call, I'd like to remind you that our remarks may contain forward-looking statements that relate to the future performance of the company, and these statements are intended to qualify for the safe harbor protection from liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance and factors that could influence our results are highlighted in today's press release and others are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments. Except as required by law, the company does not undertake any obligation to update these statements. Our remarks and press release today also contain non-GAAP financial measures within the meaning of Regulation G enacted by the SEC. Included in such release and our supplemental materials are reconciliations of these historical non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP. This call is also being webcast with a supporting presentation, and a replay and a copy of the presentation will be available on our website. Our speakers today are Rocket Lab's Founder and Chief Executive Officer, Sir Peter Beck; as well as Chief Financial Officer, Adam Spice. They will be discussing key business highlights, including updates on our launch and space systems programs, and we will discuss financial highlights and outlook before we finish by taking questions. So with that, let me turn the call over to Sir Peter. Peter Beck: Thanks, Murielle. Before we dig into the quarter, I want to walk you through what sets Rocket Lab apart as one of the only true end-to-end space companies on the planet. Ultimately, it's our technologies, our capabilities and our proven execution for the world's most demanding customers. First, our technology. For launch, we have Electron, the world's leading small launcher alongside HASTE, which is delivering critical hypersonic test launch capabilities to the Department of War and Neutron, a medium lift rocket tailored to the constellation deployment and national security missions. But launch was just a start. In 2020, we launched Photon, our first in-house developed spacecraft. That moment marked the beginning of our evolution from a pure-play launch provider to an end-to-end space company. In just 6 short years, we expanded our technology stack to include a full family of highly capable spacecraft available at constellation scale. And critically, we also manufacture the subsystems and payloads that go into the spacecraft. This vertical integration means we control quality, schedule and cost in ways that our competitors simply can't. These technologies have given us a huge suite of capabilities. We provide tactically responsive space launch and dedicated small satellite launch with unmatched flight heritage, suborbital hypersonic and missile defense testing from our defense customers and national security launch on both Neutron and Electron. Our rockets also deploy and replenish constellations, launch lunar and planetary missions and more. On space systems, our satellite and subsystems enable communication and connectivity infrastructure, missile warning and tracking, space reconnaissance and surveillance, space protection and space control, astrophysics and earth science missions in space manufacturing and more. Execution is what matters most. Anyone can promise capabilities, but Rocket Lab is actually delivering right now for demanding and complex programs. We're enabling SDA's Proliferated Warfighter Space Infrastructure, delivering complete satellites with payloads on aggressive time lines. We're supporting the DoW's Mach-TB hypersonic program and the Golden Dome Spacebased Interceptor program. We're onboarded as a national security space launch provider, and we're executing missions for the NRO, Space Force, Missile Defense Agency, DIU and DARPA. We are a trusted partner for the U.S. and international space agencies, including NASA, JAXA and ESA. Rocket Lab hardware is flying on Artemis missions. Our technology is on Mars rovers and orbiters. We support ISS resupply and other flagship NASA missions. Commercially, we're supporting direct-to-device constellations, earth observation constellations, lunar landers, orbiters and reentry missions. This is execution. Real missions on orbit now or in production and generating revenue. When the world's most sophisticated space organizations need mission success, they choose Rocket Lab. We built this technology and capability to serve our customers, but we've also built something more, the ability to deploy and operate our own space-based applications and services. We are one of the only companies on the planet with this capability. This is the next significant opportunity that lays ahead for us. So with everyone up to speed, let's take a closer look at how we executed against this strategy in Q1. This quarter has been phenomenal, the strongest Q1 in Rocket Labs history. We've blown through the ceilings across all of the most important metrics, record revenue, record GAAP gross margins, record backlog, record cash position and record launch contracts across Electron, HASTE and Neutron. With revenue, we topped $200 million in the quarter for the first time, up more than 63% versus this time last year, and our forecast has revenue coming in even higher for Q2. Our gross margins are excellent, sitting strong at 38.2% GAAP and 43% non-GAAP. Our backlog jumped to more than $2 billion in contracted revenue across our national security, civil space and commercial programs, 20% over the quarter and 108% year-on-year, again, the highest it's ever been. That's partly thanks to the record number of contracts we signed in Q1. In fact, with the 31 Electron and HASTE launches and 5 Neutron contracts combined, we booked more launches in the first 3 months of 2026 than we did for all of last year. Overall, we exited the quarter with $1.48 billion in cash and cash equivalents and currently have secured access to more than $2 billion in total liquidity, giving us financial flexibility and positioning for growth and further M&A. There are more highlights across launch and Space Systems than we could fit into one slide, so let's go over them in more detail. Starting off with small launch across Electron and HASTE. What a truly exceptional quarter it's been for Electron and haste. We booked 31 missions, which is the most we've ever signed in a quarter. Demand for Electron has always been strong, but we're seeing an inflection now across both orbital and suborbital launch. Our customers know when they book on Electron and HASTE, they're buying certainty and responsiveness they need to launch where and when they need to go. We've got more than 70 launches in backlog now, which is a new record. With 8 missions off the pad already this year, we're on track to beat last year's launch record, too, as well as we'll hit our 100th launch later this year, the fastest anyone in the industry will have ever done that. It's another record on the books for HASTE with our $190 million 20launch order through Kratos in the Department of War and MACH-TB. This is the largest single order we've seen within the program and a very clear vote of confidence from the Pentagon in Haste's ability to deliver the hypersonic test and missile defense capabilities that the nation needs. HASTE now makes up almost 1/3 of all of our launch backlog today. What's particularly significant about HASTE is that along with being the category leader for hypersonics test missions, HASTE strength has helped us to position us in the center of America's defense architecture for the next big wave of spending. We're already ingrained with spacecraft components and full satellite builds. And when you add HASTE hypersonic rockets to test missile tracking and defense, that's almost the entire spectrum of capabilities covered by Golden dome. The new era of space primes have begun injecting pace and innovation into national security and defense. Two companies at the forefront of this are Rocket Lab and Anduril, and we're excited to confirm that we're teaming up. Anduril has booked 3 dedicated HASTE launches to support missions that combine their rapid prototyping with our industry-leading flight cadence to accelerate tech development for the DoW within months, not years. The first of these launches are scheduled as no earlier than November this year. That's commercial speed and tactical responsiveness in action. While we can't talk program or mission specifics, the main takeaway from this partnership is that it brings together 2 of the defense industry's most innovative prime contractors to advance defense capabilities for the nation. So like I said, it's been a fantastic quarter for launch, but there's plenty to talk about for Space Systems as well. I'm thrilled to confirm that Rocket Lab has been selected to enable one of the nation's top national security priorities, the Space-Based Interceptor program under Golden Dome. Rocket Lab and Raytheon have been selected to demonstrate advanced capabilities for the space-based Interceptor program. This program is an important step in strengthening national missile defense capabilities, and we're proud to be contributing proven expertise to advance the development of solutions for this urgent security need. I know everyone knows we always have a strategic acquisition opportunity up our sleeve, and I'm excited to share the next one. We've entered into a definitive agreement to acquire Motive Space Systems, a Californian-based leader in space robotics, motion control systems and spacecraft mechanisms. Their technology is featured on the CADRE Lunar Rover and NASA Mars Perseverance Rover. That includes the Rover's entire robotic arm, which was the most capable ever deployed on Mars in terms of load capacity, precision and sensing. Motiv also built the zoom and focus and filter wheels for the primary imager for the mission. Most pictures you'll see from Mars come through that camera and Motiv's zoom mechanism were the first ever deployed in a planetary surface mission. This acquisition positions us to play a critical role in future lunar and planetary exploration missions, such as future commercial mass sample return missions as well as expand into significant national security programs. It will also bring the design and manufacturing of critical spacecraft mechanisms like solar array drive assemblies, antenna and propulsion gimbals, filter wheels, focus mechanisms and precision to drive electronics in-house, completing a key element of our satellite manufacturing at scale strategy. We unveiled our new electric propulsion thruster for satellites called GA at Space Symposium last month with a 200-unit production line already established and units delivered to ourselves for some of our own constellation programs. We've been inundated with inquiries from programs in need of hundreds of units each, and we're ready to break the bottleneck on electric propulsion. Rocket Lab is recognized as a world leader in propulsion. So an organic electric propulsion solution is a natural progression for us. And we're excited to bring manufacturing scale, reliability and performance to electric propulsion for the first time in the industry. The pace at which we rolled out new products this year has been relentless, whether it's been organic or inorganic, what unifies our acquisitions and our internal innovations is a powerful vision, complete vertical integration across the entire satellite value chain. Everything you see on this page, optics, solar, laser terminals, electric propulsion and other components is already being built to our own platforms or being supplied to others. So that's a good chunk of upcoming missions across civil, commercial and national security have a Rocket Lab logo on them somewhere. We're a supplier of choice across the industry and other prime contractors turn to us for mission-critical technology. This quarter, we also closed our acquisition of Mynaric, but the real story here is more than just adding optical comm terminals to our national security capabilities. With Mynaric, we've established Rocket Lab's first European footprint to support the German and European space industry on a much larger scale. Our expansion couldn't have come at a better time. The European space and defense market has been accelerating its investments in sovereign space capabilities, up to $109 billion by 2030 by some estimates across the European Union, Germany and the United Kingdom. Rocket Lab Europe gives us boots on the ground to capture that demand, whether it's optical comms, spacecraft build, international constellations, responsive launch or providing our sought-after subsystems in high volumes. The door is now open to programs, partnerships and revenue streams that weren't accessible before. And Rocket Lab Europe is about positioning the company for what's the next phase of growth in one of the world's most strategic markets. Moving on to Neutron. I'm excited to announce a new multi-launch contract for Neutron that makes up the largest contract in Rocket Lab's history, 5 dedicated Neutron flights plus 3 electrons now between now and 2029 for a confidential customer. It was only a few weeks ago that we announced a $190 million 20launch deal for Hays, which was the record at that time. Now we have exceeded that deal with an even larger one. It speaks volumes to the strong and growing demand for all of our launch capabilities, and this booking means Neutron's manifest is filling up fast right through the end of the decade. This market needs medium launch. The demand signal is clear. Equally clear from these continued bookings is that customers trust Rocket Lab and Neutron to deliver this medium launch capability. We've introduced and scaled new vehicles to a reliable high cadence before. We're 1 of only 2 companies in history that has successfully done this with meaningful reliability, and we're doing the same with Neutron. I hope that by now, you know that my stance is not discounting flights just to fill up a manifest. So I can confirm that pricing for these Neutron and Electron launches are very much in family with our commercial rates. Now on to development updates across the program. The team has made tremendous strides on the Stage 1 tank. Design refinements and have improved both the tank strength margins and manufacturability and give us confidence in the structural performance. It's only been 2 months since our last Neutron update, and already we have AFP made components sitting on the production floor. That's the beauty of automated production with AFP, not just for Flight 1, but also for the fleet of vehicles that come thereafter. This will feed directly into the next round of testing and qualification for Stage 1's tank as we drive towards Neutron's debut. As it stands, current progress is keeping our aggressive schedule towards the first launch later this year. Stage separation tests are also underway using Stage 2, it's interstage and fixed bearing test articles to test a condition as close to flight for how Neutron's first and second stages will separate during launch. Stage 2 deployment is arguably Neutron's most novel capability. Unlike other rockets with stacked stages that separate, Neutron's second stage is hung inside the fairing before it's deployed along its interior rails and out the mouth of the Hungry Hippo fairing. This reusable architecture is one of Neutron's clever competitive advantages. It allows us to reuse fairings without having to deploy separate marine assets to capture them down range or deal with refurbishment from spacing down them in the ocean. We've cleared separation events at full flight loads on the second stage article and interstage deployment system, which is great news. We're now testing the resilience of the off-nominal separation events. So if you see something broken on the test sand from here on, know that that's completely intentional. For the end stage, that's happening at Middle River right now as the team works on the structures qualification. It's up to the test stand and being subjected to its loads that we should expect during launch, reentry and landing. Then it will head back inside the building to be fitted out with its full suite of applied avionics and fluid systems. After that, it will be shipped off to Wallops to join the Hungry Hippo fairing for further assembly. Another part of Neutron's program that we don't talk about enough, but which is a critical part of its development is the landing barge called return on investment. Now the photos do not do it justice because this thing is massive. It's particularly -- practically a launch site of its own. We're talking a huge amount of power generation, 10 megawatts across its 4 station keeping thrusters, enough to power thousands of homes. By the time it's completed, it will be more than 11 million pounds or 5,000 metric tons. So fitting out this landing platform is coming along nicely. Housing for the platform thrusters have been installed as well as the main cabin and the aft edge of the barge. Its power generation systems and thrusters have arrived to the shipyard in Louisiana and are ready to go in next, and we're on track for sea trials to start later this year. It's one thing to say that you're going to be reusable. It's another to actually make the investments into the landing platforms that enable it. We're doing this now well ahead of time so that we can move swiftly into reusability with Neutron as early as flight 2. And finally, to round out Neutron's development, here's a look at the other significant progress across the program. From the bottom of the vehicle to the top, we've got the Archimedes engines continuing to undergo extensive testing at Stennis in their flight configurations. This is for both Stage 1 version of the engines and for the vacuum optimized Archimedes that will power Stage 2. It's nonstop hot fires across both tests as the team really stretches the performance of these engines while running them in the full range of gimbal angles. For the thrust structure, since completing qualification, the team has gotten stuck into fitting it out with all the flight set of avionics and fluid systems. That's taking place at our Middle River facility before it's sent out to the Launch Complex 3 for integrated systems testing on the pad. Stage 2 continues to progress with the integration of fluid systems and avionics. We also qualified its payload support structure, a separate interface on the top of the stage that physically attaches a satellite to Neutron. This payload support structure is another carbon composite structure that's designed to be as lightweight as possible since every kilogram reduces payload capacity. And having cleared qualification smoothly, it's just days away from shipping out to launch Complex 3 as well. Then right at the top of the Hungry Hippo, our qualified reusable faring system has been covered in TPS or thermal protection system once arriving in Virginia. Integration of the avionics and fluid systems on this part of the vehicle continues as well. So as you can see, there's been lots of Neutron activity lately. I will remind you that these comprehensive test campaigns are all being run in parallel, all time to converge for the first launch at the end of this year. That means a lot more exciting updates to look forward to in the coming weeks and months before the vehicle comes together and goes on to the pad. That wraps up the operational highlights. Now over to Adam for the financial overview and outlook. Adam Spice: Thanks, Pete. First quarter 2026 revenue was a record $200.3 million, coming in just above the high end of our prior guidance range and representing an impressive year-over-year growth of 63.5% and quarterly sequential growth of almost 12%. This strong performance was driven by significant contributions from both of our business segments and underscores the continued momentum across the business. Our Space Systems segment delivered $136.7 million in revenue in the quarter, reflecting a year-on-year increase of 57.2% and a sequential increase of 31.7%. This growth was primarily driven by increased contribution from our satellite platforms business, which continues to perform exceptionally well and provides company diversification alongside a robust but at times lumpy launch business. Meanwhile, our Launch Services segment generated $63.7 million in revenue, up an impressive 78.9% year-over-year, though down 16.1% sequentially due to fewer launches in the period. Now turning to gross margin. GAAP gross margin for the first quarter was 38.2%, up slightly sequentially and above our prior guidance range of 34% to 36%, with outperformance driven primarily by solar products and launch, owing to better-than-expected absorption and lower spend, respectively. Non-GAAP gross margin for the first quarter was 43%, while down slightly sequentially, was also above our prior guidance range of 39% to 41%. The sequential decline in non-GAAP gross margin, which was better than expected, was primarily driven by a mix shift towards Space Systems and a modest decline in launch margin based on mix and lower revenue. Relatedly, we ended Q1 with production-related headcount of 1,448, up 250 from the prior quarter, largely driven by a transition of dedicated R&D headcount from the first Neutron test flight to our production teams related to future revenue-generating missions as well as headcount ramps related to our recent Geost and PCL acquisitions. Turning to backlog. We ended Q1 2026 with approximately $2.2 billion in total backlog, with launch backlog accounting for approximately 41.5% and Space Systems representing 58.5%. During the quarter, launch backlog continued to gain share, supported by strong underlying trends as we convert a robust pipeline of opportunities across Electron, HASTE and Neutron. This includes the 20 HST block buy missions signed within the quarter that Pete mentioned earlier as well as 5 Neutron bookings with a confidential customer. We are actively cultivating a strong pipeline that includes multi-launch agreements, large satellite platform contracts and an increasingly diverse set of satellite component and subsystem merchant opportunities across government and commercial programs. As noted earlier, these larger needle-moving opportunities can introduce lumpiness in backlog growth, but they are critical drivers of long-term value and scale for the business. Looking ahead, we expect approximately 36% of our current backlog to convert into revenue within the next 12 months. Additionally, we continue to benefit from relatively quick turns business, particularly in our Space Systems components and subsystems businesses that drive incremental top line contribution beyond the current 12-month backlog conversion. In addition, as we close and integrate our new acquisitions such as Geost, Optical Systems, Inc., Monarch and MOI, they will be accretive to our served addressable market opportunity, backlog and forward revenue growth rates and margins. Turning to operating expenses. GAAP operating expenses for the first quarter of 2026 were $132.5 million, above our guidance range of $120 million to $126 million, driven by the stock-based compensation charge related to Peter Beck's RSU forfeiture. Non-GAAP operating expenses for the first quarter were $105 million, which was below our guidance range of $106 million to $112 million. In R&D specifically, GAAP expenses increased $1.7 million quarter-over-quarter, while non-GAAP expenses rose $1.9 million. These increases were driven by continued investment within our Neutron program paired with seasonal step-ups in payroll taxes. Q1 ending R&D headcount was 949, representing a decrease of 70 from the prior quarter. The decrease in dedicated R&D headcount is due to the transition of our production teams from R&D cost centers to production cost centers as we begin the transition from the first Neutron R&D test flight to future revenue-generating missions. In SG&A, GAAP expenses increased $11.4 million quarter-over-quarter, while non-GAAP expenses declined $1.3 million quarter-over-quarter. The increase in GAAP SG&A was primarily due to the previously mentioned Peterbck RSU cancellation, resulting in a large onetime stock-based compensation expense. Meanwhile, the decline in non-GAAP SG&A was primarily due to a onetime adjustment of accruals related to our 2025 annual bonus plan, which were ultimately lower than previously anticipated due to certain executive officers foregoing bonus awards for 2025. Q1 ending SG&A headcount was 381, representing a decrease of 4 from the prior quarter. In summary, total headcount at the end of the first quarter was 2,778, up 176 heads from the prior quarter. Turning to cash. Purchases of property, equipment and capitalized software licenses was $27.1 million in the first quarter of 2026, a decrease of $22.6 million from the $49.7 million in the fourth quarter. This decrease reflects less capital investment in Neutron development during the quarter, particularly for the return on investment recovery barge as well as the pad at LC3 at Waltz, Virginia. As we progress towards Neutron's first flight, we expect capital expenditures to remain elevated as we invest in testing, production scaling and infrastructure expansion. GAAP EPS for the first quarter was a loss of $0.07 per share compared to a loss of $0.09 per share in the fourth quarter. The sequential improvement to GAAP EPS is primarily due to increased revenue contribution paired with increased gross profit. GAAP operating cash flow was a use of $50.3 million in the first quarter of 2026 compared to a use of $64.5 million in the fourth quarter. Similar to the capital expenditure dynamics mentioned earlier, cash consumption will remain elevated due to Neutron development, longer lead procurement for our SDA programs and investments in subsequent Neutron tail inventory as we scale the business beyond its initial test flight. Overall, non-GAAP free cash flow, defined as GAAP operating cash flow less purchases of property, equipment and capitalized software in the first quarter of 2026 was a use of $77.4 million compared to a use of $114.2 million in the fourth quarter. The ending balance of cash, cash equivalents, restricted cash and marketable securities was roughly $1.48 billion at the end of the first quarter. The sequential increase in liquidity was driven by proceeds from sales of our common stock under our at-the-market equity offering program, which generated $450.4 million during the quarter. In addition, in April, we completed the ATM offering by raising another $24 million in cash as well as entering into a collorered forward transaction with a floor price of $474 million. We also have access to capped call transaction proceeds related to our 2024 convertible notes offering with a maximum aggregated payment of $201.9 million by final maturity in 2029. Putting this together with our cash on hand, we now have access to more than $2 billion in liquidity, resulting from a successful series of capital raises over the last several years conducted at increasingly higher equity prices. In February of 2024, we raised a $355 million convertible bond offering with an effective post-capped call price of $8.04 a share and followed that with a series of 3 ATM facilities executed at average prices of $26.19, $47.85 and $70.47, respectively. Additionally, under the most recent ATM, we entered into colored forward transactions with a floor price of $63.61 and a ceiling price of $86.11. These funds are intended to support acquisitions and a robust M&A pipeline alongside general corporate expenditures and working capital. We exited Q1 in a strong position to execute on both organic and inorganic growth initiatives and to further vertically integrate our supply chain, expand strategic capabilities and grow our addressable market, consistent with what we've done successfully in the past. Adjusted EBITDA loss for the first quarter of 2026 was $11.8 million, which was well below our guidance range of a $21 million to $27 million loss. The sequential improvement of $5.6 million in adjusted EBITDA loss was driven by higher revenue and strong gross margin. With that, let's turn to our guidance for the second quarter of 2026. We expect revenue in the second quarter to range between $225 million and $240 million, representing 16% quarter-over-quarter revenue growth at the midpoint. We anticipate GAAP gross margin to range between 33% to 35% and non-GAAP gross margin to range between 38% to 40% -- these forecasted GAAP and non-GAAP gross margins are accounting for a shift mix within our Space Systems business. We expect second quarter GAAP operating expenses to range between $138 million and $144 million and non-GAAP operating expenses to range between $120 million and $126 million. The quarter-over-quarter increases are primarily driven by the Monarch acquisition and ongoing Neutron development and spending related to Flight 1, including staff costs, prototyping and materials. However, we expect to see a shift in spending from R&D to Flight 2 and beyond inventory, which is an encouraging sign of progress as we move closer to Neutron's first flight. Please note that the nascency of the closing of the Monarch acquisition and the newly announced and yet to be closed Motiv transaction, the GAAP guidance figures exclude any to-be-determined impact of purchase price allocation and stock-based compensation related to these deals. We expect second quarter GAAP and non-GAAP net interest income to be $12.5 million, which is a function of higher cash balances as well as a significant reduction in our outstanding convertible notes. We expect second quarter adjusted EBITDA loss to range between $20 million and $26 million and basic weighted average common shares outstanding to be approximately 629 million shares, which includes convertible preferred shares of approximately 46 million. Lastly, consistent with prior quarters, we expect negative non-GAAP free cash flow in the fourth quarter to remain at elevated levels, driven by ongoing investments in Neutron development and scaling production. This excludes any potential offsetting effects from any financing activities. In summary, Q1 was another quarter of strong execution. We exceeded guidance and expectations for revenue, gross margins and EBITDA, all while maintaining robust liquidity to fund future growth initiatives. We expect this momentum to continue, guiding to strong revenue growth as our satellite platforms business continues to scale and Neutron progresses towards first flight. And last but not least, here are some of the upcoming investor events that we'll be attending in the next few months. And with that, we'll hand the call over to the operator for questions. Operator: [Operator Instructions] We'll take our first question -- your first question comes from the line of Andres Sheppard from Cantor Fitzgerald. Andres Sheppard-Slinger: Congratulations on all the quarter and all the great progress. Maybe one on Neutron and one on Space Systems. So on Neutron, Pete, I know you talked a lot about this during the prepared remarks, but just maybe to simplify it for us, what are the key items that are pending that investors and ourselves should be tracking as we get closer to the first launch? And also curious if you can maybe give us some of the customer feedback that you've been getting on Neutron since you're contracting Neutron missions ahead of that first launch. So just curious on that customer feedback and reception that you're getting. Peter Beck: Andres, nice chat here. So I guess the key things to be watching out for the continued placing of items on test stands because really, that's the large pieces of work yet to come that have risk associated with them. So as we put these large pieces of the vehicle on the test stand and take them to their limits and sometimes beyond, then the completion of those pieces of work is probably the easiest and most visual thing to track. Of course, there's a tremendous amount going on in the background that's kind of less visible. But for investors, I think that's probably the easiest thing to focus on. And then with respect to customer feedback, I think you can see from our strategy of just not dropping our pants and deploying neutrons at really low prices. We've held our ground there. And the customers that ultimately buy those vehicles, they know us well, and we're very well trusted. And they have complete confidence in both Rocket Lab and our ability to deliver Neutron. So needless to say, there's also a lot of customers waiting to see it fly. So -- but the more aggressive customers are making sure that they don't miss out their opportunities to fly early. Andres Sheppard-Slinger: Wonderful. No, that's great to hear. And maybe just as a quick follow-up, maybe for you, Adam, on the Space Systems and on the state-based Interceptor program, -- just curious if you can maybe quantify that a bit further for us or any granularity in terms of the structure or expectations there alongside Raytheon? Adam Spice: Yes. I'll provide what color I can, and I'll pass it back over to Pete with regards to the relationship of the partnership with Raytheon. It really is we view it as a partnership. I think everybody has been -- had a lot of visibility to what's going on with various elements of Golden Dome. SBI is one of the more visible ones. There's a limited amount that we can really talk about for that program specifically. But we envision a very large opportunity, but there are gates that we got to get through. And as you're aware, this is kind of an interesting procurement process for the government where companies like ourselves and Raytheon and others that are in the mix have to put some of their own skin in the game to unlock a potentially very large opportunity in the back end. So I'd say the most important thing right now is, are we able to, like we have in the past, bring really quick cost-advantaged solutions to the market because of our vertical integration capabilities. We'll be able to do things in time frames and cost points that we think few, if any, people will really be able to compete with. So we think we're in a good spot. And I don't know, Pete, do you want to put any more commentary? Peter Beck: I think you've covered it beautifully out of me. I can't really add more to that. Andres Sheppard-Slinger: All right. Excellent. Congrats again on all the great progress. Looking forward to the Neutron first launch. Operator: Your next question comes from the line of Kristine Liwag from Morgan Stanley. Kristine Liwag: Pete, Adam, there were a lot of moving pieces that occurred in the quarter as you continue to broaden out your capabilities and increase vertical integration. So I guess, first, when you look at your capabilities today, are there any areas you are interested in filling in more? And also second, as you continue to broaden out your capabilities, how do you think about the expansion of your TAM? And how should we think about opportunities as you're able to provide more solutions as space as a service? Peter Beck: Kristine, great to talk to you. Well, I think you've just seen just a methodical approach here from us is we continue to expand our TAMs. But what I would say is they're all expanding for a common reason and a common direction and that, as we've talked about, to ultimately be able to provide services of our own in orbit. So I mean, yes, I think at this point, there's a lot of capability that we've managed to accumulate both organic and inorganic. And I think we're really at the point where I think if anybody comes to us and ask us to build any spacecraft or satellite, we just sort of track our shoulders and get to work. So I think we've brought in-house a tremendous amount of capability, and it all kind of drives towards those end goals. Adam Spice: Yes. And I would add maybe one more point to that. I think it's important for shareholders. Like a lot of other companies when they're going to expand into new TAMs or expanding into ones that are already in, they just default to acquiring their way in. And I think this quarter is a great example of us being able to really execute on both sides of the organic and inorganic side. We announced a few weeks ago, as Pete talked in his prepared remarks about Gouse, our EP solution that we're bringing to market. that's one where we could have spent a few hundred million dollars acquiring a start-up and kind of went through all the scaling challenges there and then probably ultimately came out with a solution that we thought would be inferior. Instead, we dedicated a portion of our engineering team, probably an order of magnitude less capital to get it done, and we ended up with what we think is the best solution for the market. So I think when we look at how we expand in new markets, we're not just so kind of focused on just again spending shareholder capital to go get it from acquisition. We'll actually be very efficient and go after it organically as well, which we think yields great benefits for our shareholders. Kristine Liwag: Great. And if I could follow up on Neutron. You guys talked about the pricing for the recent deal aligns with your average selling price for the launches. With a smaller backlog for Neutron, can you level set us on how we should think about the pricing for that? And then also with the maturity or the upcoming launch in the fourth quarter, what's been the customer reception for this? You've got a very strong order this quarter. You noted higher than what you had last year. So I just want to understand the demand environment for that launch as we get closer to 4Q for the first one. Peter Beck: Yes. Thanks, Kristine. I mean, look, we've always been consistent about our pricing structure with Neutron, and that remains the same. I think I was burned pretty heavily with discounting electrons and flushing them out of the manifest it took years. So we're not -- we're just not going to go down that road again. And then of all of the things that I sit awake at night worrying about, like Neutron demand is just not one of them. And with the backlog we have currently with Neutron, the backlog is super healthy for a number of years. And at this point, we also need to make sure we have capacity for other customers as well. Adam Spice: And I think, Kristine, we can also kind of look back historically and look at what happened with Electron pricing. And when we brought that vehicle to market, pricing was, call it, $5 million to $6 million. And we now see how backlog is priced with average backlog priced in around $8.5 million for commercial missions and some hypersonics being higher than that. So I suspect that we'll see that same kind of trend present itself as we bring Neutron to market where we tend to be very conservative upfront. we understand the value proposition that Neutron brings relative to what is arguably very scarce competition in the market, primarily Falcon 9. And we think that we'll compare very favorably there and hopefully experience an upward bias to ASP as we continue to kind of gain cadence and credibility with the platform. Operator: Your next question comes from the line of Erik Rasmussen from Stifel. Erik Rasmussen: Congratulations on the Neutron bulk order. Just trying to understand, I hear your comments around trying to be pretty pragmatic and balanced and keeping an eye on your ASPs for that to make sure that you're not sort of underselling that rocket ahead of schedule. But are we -- are you at a point now where you will -- where we could see an acceleration of the signings of Neutron and those Neutron launch contracts given obviously the strong demand that we're seeing there? Peter Beck: Yes. I mean, potentially, Erik, I think that will certainly occur after successful flights for sure. And for a number of reasons, not just customer confidence, but also insurance rates will go down and all of those kind of things that get factored into launch costs. So -- and look, we're also always very careful with what we commit given that it is a development program, and we don't want to leave anybody down. So having customers that have some flexibility in the beginning is super helpful. Erik Rasmussen: Great. And maybe just my follow-up. You spent a little bit of time on the AFP machine. But what are your -- and it seems like you made a lot of progress there. But what are your expectations for moving from maybe a single development machine to maybe more of a high cadence production on that? Peter Beck: Yes. the AFP, the single machine we have fits our production for far into the future. So at the end of the day, Stage 1s will be a fleet model, no different to a fleet of airplanes. The only part that we reproduce are the Stage 2s, which we can bang out on the AFP super quickly. So at full cadence rate, we don't see the need to really invest into too much more of the AFP infrastructure. It's well scaled right out of the chute. Operator: Your next question comes from the line of Trevor Walsh from Citizens. Trevor Walsh: Peter, maybe for you. On the Motiv acquisition, the prepared remarks focused a lot on the kind of planetary exploration, Mars missions, missions, et cetera. But there was a little call out in the slide deck around on-orbit docking and spacecraft servicing. That seems like that could be a really large opportunity. How much is Motiv leaning into that right now? Or what -- can you just maybe unpack what that specific piece kind of looks like and if that's something we should kind of be paying attention to at all for that acquisition? Peter Beck: Yes. Thanks, Trevor. So Motiv actually brings a really interesting and unique capability. So yes, I mean, we highlighted the MA stuff because that's extremely unique and frankly, very cool. But also basically, any actuation and high-precision actuation, these guys are literally the world experts at. So that ranges from booms and cameras, of course, through -- as you pointed out, like if you want to do some onaudites, we have a very own Rocket Lab Canada, if you will, for that kind of stuff. But also just precision drive and drive electronics for things like solar panel rotators and array drives, which is something that typically we have bought, so we're able to now bring that in-house as well. So yes, it's a unique acquisition in the fact that it exposes us to new opportunities and gives us new capabilities. It also closes one of the last few subsystems that we currently buy externally and with respect to solar array drives. So yes, it does a number of things for us. Trevor Walsh: Great. Appreciate that. Adam, maybe just a quick follow-up for you. With respect to the step down in non-GAAP gross margin, both in this quarter and then I think what's implied based on what you're guiding to for Q2, you said that was basically Space Systems mix entering in. Is that specifically the SDA tranches coming in? Or I think that was called out for Q1 as the kind of main driver there, but is that also flowing into what's happening in Q2? Or is there some other dynamic that we should be thinking about? Adam Spice: No, you've got that right, Trevor. It's essentially as the SDA Tranche 2 and Tranche 3 programs become more and more of the mix, they come in at lower gross margin, but they bring a lot of scale with them. So if you look at what that does to kind of overall operating margins, it will be accretive to that. But I think that the other thing to think about, too, is we have normal quarterly mix changes. This quarter, there's less higher-margin launch business in Q2 than we had in Q1 and Q4. And the launch business, as we've talked about in the past, it's a little bit difficult to predict because now we have a mix of point-in-time revenue recognition and overtime revenue recognition. And so I think it's just -- it's much harder to have a lot of predictability to what that margin is going to be. But overall, we see margins expanding in launch as we progress through the year as we increase our cadence on Electron. And then as we also have periods where we mix in more subsystems and components business, those typically come at higher gross margins than these large SDA contracts. So we feel very good about where we're at margin-wise. We think we have a lot of opportunities to continue to drive gross margin increases. So really -- but you got to look -- when you start kind of getting a little bit too kind of digging a little too deep in one quarter versus the next, there's a lot of things that are moving around under the surface. But again, the macro trend is supportive of solid gross margins going forward. Operator: We will take our next question and the question comes from the line of Michael Leshock from KeyBanc Capital Markets. Michael Leshock: I wanted to follow up on the Motiv acquisition, and you mentioned how it brings in-house a lot of the costly and supply-constrained components. You called out solar array drive assembly specifically. For things like that, did you previously buy them from Motiv? Or did you have multiple other suppliers for components like that? Peter Beck: Michael, yes. No, we bought them from multiple suppliers previously. Michael Leshock: Okay. Great. And then maybe moving to Electron and just assuming that the demand is there for more launches and the impressive manifest that you have clearly implies that it is. How many electrons could you physically launch annually? Is there anything that could potentially lead to another step change in the electron launch cadence or any potential bottlenecks that might be preventing even more of an increase in those launches? Peter Beck: Yes. So we -- when we set up the Electron factory, we designed it for 52 electrons a year. So we have capacity to reach there. And there'll be some modest capital investments to reach that, but that's basically it. And we have 2 pads already done at Alpha 1. So that's not a constraint. And of course, we have the second -- sorry, the third pad in Wallop. So no, I think we're really set up for that increase in cadence. And yes, it would be very, very modest investments to realize that. And then, of course, over 52 launches a year, we'll have to take a little bit more real estate and expand the factory, but it's all pretty trivial stuff. Operator: Your next question comes from the line of Ron Epstein from Bank of America. Alexander Christian Preston: This is Alex Preston on for Ron. I wanted to ask on Space Systems. Are you seeing or thinking about -- or how are you thinking about opportunities in proliferated GEO and maybe other higher orbits, right? I know it's been -- the trend has definitely been towards LEO proliferation. But I think in recent weeks, we've seen some momentum on contracting activity, particularly it seems on the Space Force side there. Is this a space you're looking at? And to what extent could you maybe enter that market as a prime as well given your current capability set? Peter Beck: Alex, certainly, we're interested in that. And a lot of the spacecraft that we build already go to high -- low earth orbits and they -- that necessitates incredibly hard radiation tolerance. So those environments are not dissimilar to GO. So a lot of the challenges around rad-hard and those kind of operating environments, we're already very familiar with. So going to geo for us is not scary at all. I mean we're happy to go to Mars and operate in those really deep space environments. So a lot of that tech stack is kind of rad-hard or rad-tolerant already. So yes, we are watching the geo stuff as well as you are. And I think that is an area we could easily move to. Alexander Christian Preston: Great. And then if I could follow up, I think Kristine asked this question similarly, but I wanted to ask more on the national security side, if there are -- right? So you've got the capabilities on launch, haste, providing satellites themselves to SDA, now adding to that with SBI. Are there areas that you could look to expand your capabilities, specifically looking at national security that maybe areas you can't address currently that you'd like to in the near term? Peter Beck: Yes. I think one of the really interesting opportunities that the GES application brought us is these very bespoke unique national security payloads. So with that acquisition, I think we were introduced and got exposed to a lot more programs and folks than we would have otherwise. So I think it's a core drive and a core capability within the company. And I think we are -- in one way or the other, whether it's a component supplier or a prime, we have pretty deep exposure into that national security environment now, as you point out, both through launch and through spacecraft. Operator: Your next question comes from the line of Jan Engelbrecht from Baird. Jan-Frans Engelbrecht: I'll start with the Space Systems business. You announced a lot of updates recently, I think, 7 different sort of capabilities in the last 4 months. And then there was the in-house development of key components, if you think of the Star Tracker in Toronto, electric propulsion cluster in New Zealand and then the Mynaric deal. And sort of each of these updates points towards a strategy of expanding Rocket Labs manufacturing footprint beyond the U.S., so more sort of a distributed manufacturing model. Just curious the thoughts there. Should we expect more of that in the future? Did sort of the disruption of tariffs factor into that? Or was it mostly just a logical business decision of being able to serve customers globally in a much easier way? Peter Beck: Yes,. So a bit of both, a bit of all of those things you said actually. So yes, it's strategic in the fact that, for example, Mynaric really gave us a foothold in Europe. And Europe outside the United States is like the second largest market and opportunity for us. So -- and also, it just sort of depends where the technology is, like the Minar laser terminals are widely regarded as the best in the business. So if it means we have to go to Europe to get them, that's where we'll go. So that was just convenient that was also very strategic for us. But yes, I mean, we operate kind of areas of excellence in some places, it makes sense to do stuff in New Zealand, some times it makes sense to do it in various facilities in the states. So we really look at that quite holistically in that sense. Jan-Frans Engelbrecht: And then if I just could have a quick follow-up. As we think about the Trans 3 tracking layer, I think in late December, it was about $800 million. And then in the release, it said there's a potential for subcontracting opportunities to take it up to $1 billion. I was curious, any of the updates, any of the new components that you've announced sort of developed in-house and then you've brought Mynaric in there. Is there anything -- I know you can't maybe don't want to talk about exact dollar values, but if we think about future tranches of the tracking layer, is there a ballpark of sort of content that these latest developments sort of has increased your ability to serve the other prime customers? Peter Beck: Yes. So I mean, a number if we just talk about some of the transport layer stuff and some of the track and SDA work in particular, like they are all optically linked together. So obviously, there's an opportunity there, and they all have high-power solar requirements and there's opportunities there. They all need electric propulsion, so there's opportunities there. So you can see that we can be widely distributed across things. And I like to think of it as like even when we lose, we kind of win because if we lose a project, then the next day, there's a bunch of purchase orders turning up for solar panels and ration wheels and all that kind of stuff. So even when we lose, we win. But even when we win, we also win twice because the same thing happens is we can win the program. And if there's multiple awards, typically, there'll be -- come Monday, there'll be a bunch of urge orders for components for other people's systems as well. So that's kind of what you saw with T3 is we kind of won twice. Operator: Your next question comes from Edison Yu from Deutsche Bank. Xin Yu: I want to actually ask something I brought up a couple of calls ago. And it's in the context of -- you obviously laid out today, you have the complete satellite component portfolio, a whole line of different types of satellites. And then you probably saw recently Amazon acquired Globalstar. And so does spectrum and these kind of potential services markets in the future, have your views kind of changed over the last maybe 6 to 9 months? Are there certain services that look more attractive, less attractive? Does spectrum -- your view on spectrum change at all? Just curious your views on that. Peter Beck: Great to talk to you. Look, I think we've always been super consistent that the end goal here is to provide services from space. And I think that's the largest TAM, and that's where if you own your own rocket and have your own satellites, you can be most disruptive. And that thesis hasn't changed. But I also think it's a little bit academic to be talking about us doing services when we still have Neutron in development and things like that. So it's at the right time, I think we'll be happy to talk a little bit more about our thoughts there. But for right now, the focus is really on completing Neutron and making sure that we have all the components and everything we need at scale to be able to ultimately deploy applications in orbit. Xin Yu: Understood. And then probably something maybe more -- perhaps a little bit more near term or more kind of next couple of years. I think you said your the manifest was like 1/3 already or 1/3 of the manifest. Do you kind of envision a future where your launch mix is actually becomes probably like 1/3, whether, let's say, for every -- let's say, you get 30 launches, 10 of them every year are actually hypersonic testing. Is that like a realistic scenario? Peter Beck: Yes. Look, it could be. And part of this will depend on the pace and scale of Golden Dome. -- because one really key critical element of Golden Dome is how do you test it and simulate the threats and all those kinds of things. And this is where we're seeing a lot of interest in the HAS portfolio, of course, because you can do things with that, that it's very difficult to simulate. So I would say that the scale of HASTE will somewhat depend -- or the massive scale of HASTE will somewhat depend on the scale of Golden Dome and the pace in which that takes place. Adam Spice: Yes, Edison, I'd also maybe add to that, too, that one of the things that we're seeing is the international opportunity is becoming much more clear and present. I think that also applies to hypersonics, right? I think that the environment that we find ourselves in these days geopolitically just is driving more and more sovereigns to need capabilities that these to rely upon the U.S. for primarily. So again, when you think about the long-term demand for HCE type of solutions, I don't think you have to think of just the U.S. as the customer base for that. I think it's going to expand beyond that. Now of course, everything we do requires U.S. State Department approval and cooperation. And we, of course, work with only the most friendly partners in the United States, but I think there is a bigger opportunity out there than just like MCTV, for example, and U.S. government opportunities. Operator: We will take our next question. The question comes from the line of Gautam Khanna from TD Cowen. Unknown Analyst: Anton on for Gautam. Can you just share some more details on Neutron timing? So based on the way things are trending now, is this more of an early Q4 story or late Q4 story? And then just depending on the timing of the first Neutron launch, is it possible we could see maybe 3 payload carrying launches in 2027? Adam Spice: Gautam, could you repeat the first question? We had a bit of a follow-up on the audio on our side. Unknown Analyst: Sorry about that. Can you just share some more details on Neutron timing? Is this kind of more of an early Q4 story or late Q4 story? And then the second part was just depending on the timing of that first launch, could we maybe see 3 payload carrying launches in 2027? Peter Beck: Yes. I mean I don't think we have enough visibility to narrow it down to a couple of weeks and a quarter at this point in time. As we approach first launch, it will be -- those time lines will become much, much tighter. And then we've always said that plan is sort of 135, and that's what we've demonstrated with Electron, and we think that's the right kind of cadence. So that thought still remains consistent. Operator: Your next question comes from David Strauss from Wells Fargo. David Strauss: This is [ Ben Tom ] on for David. I was just curious, following up on that last question, when do you plan to incorporate the reusability for Neutron? And then how will that kind of impact cadence going from there? Peter Beck: Yes, great question. So on Flight 1, we'll be attending to reenter into a soft splashdown for Neutron. So that will test all of the reentry engine relights and downrage burns. This is the area that's kind of the most unknown and the hardest to test for other than actual flight testing. Hence, the reasons for the intentional soft splashdown where we just splash down in the ocean. Provided that is -- that all goes well, and we're happy with what we need to do there, then we'll slip the return on investment barge under it and attempt to landing on Flight 2. Now of course, if we don't get the result that we want on the reentry for Flight 1, then we'll reevaluate. And basically, I just don't want to put the barge under the vehicle until we know that we're not going to punch a hole through it. Unknown Analyst: Got it. Great. And then maybe going back to -- can you just provide an update on your contracts there and then how you're thinking about that program at a high level? Have you guys received all the funding for Tranche 2 transport? And how are you thinking about the transport layer going forward with that shift to the space data network? Adam Spice: Yes. Well, I can speak to where we are with contracts. So everything is on track. We've been hitting our milestones. We've been getting on-time payments from our government customers. In fact, a pretty sizable one earlier this week. So no, I think everything seems to be on track there. So I don't think funding is an issue for the programs that we're executing against. As far as the long-term direction for transport layer, I think there's been plenty of kind of press and discussions and a lot of speculation, of course. But I think for us right now, our focus is on executing our Tranche 2 of transport and then, of course, on the missile track missile warning for Tranche 3. I don't know if Pete, do you want to add anything to that? Peter Beck: Yes. Thanks, Adam. I think you've covered it well. I mean transport is kind of one layer. But I mean, the layer that is doing the work is track. So hence, the reason why we focused very intently on that for the T3 stuff. Operator: The next question comes from Suji Desilva from Roth Capital. Suji Desilva: Congrats on the progress here. Adam, I know you talked about the Space Systems business coming in with the PWA program. But maybe can you talk about what the mix of launch in Space Systems, how it may trend? There are a lot of moving parts that I know may be hard, but -- and then gross margin implications of that as you look out the next several quarters, I guess, 1 or 2 years maybe. Adam Spice: Yes. So look, I think that we're clearly going to have more mix in 2026 as we progress through the year coming from Space Systems, even though we're going to have pretty significant growth coming from the electron side of the business as well, Electron and haste. I would say that it won't be dramatic. As the mix -- as I mentioned earlier, as the mix skews more towards Electron, that's very helpful to the overall corporate margin because that product is really coming into its own, getting very close, if not at the target margins that we set for that business several years ago. When you look at our Space Systems business, we mentioned earlier that, yes, these SDA contracts are large, and they bring a lot of absolute dollar scale with them with a little bit lower gross margin profile. But the other thing to take note of, too, is if -- we just closed the Mynaric acquisition. That will contribute, if you want to think about roughly $15 million in this quarter on a run rate basis. And that comes at lower than the Space Systems overall gross margin because it's a brand-new business. I think Pete mentioned on the last call that there's a bunch of work that we need to do there to get that business in a fighting shape in the way that we view kind of Rocket Lab product lines. We're very excited and very confident we're going to get there, but there's some work to be done. And until we get a few more quarters under our belt and really kind of Rocket Lab eyes, if you will, that system, it's going to be a bit of a drag on margins, but I wouldn't say anything too, too significant. And we do think longer term that there's no reason why that business can't be at or greater than our target margins for our Space Systems division. So I think the other thing that's going to influence is, obviously, once we start to get Neutron in the mix, which is really more of a obviously revenue-generating 2027 story onward, that's going to do, we think, very much what Electron did through its maturation, which is start off with challenged gross margins, but then because of reusability and because of our experience in kind of ramping a rocket business, we think that, that's got as much, if not better, long-term gross margin potential as Electron is exhibiting. So I think overall, we're not going to see a dramatic shift, I think, either quarter-to-quarter or even over the next several years. It's going to be more of kind of the progression that we've seen. And I think we've been pretty clear in kind of what our long-term model for the business is, which is a strong top line growth with gross margins at a corporate level and again, longer-term targets of around 50% or greater and then delivering mid- to upper 20s operating margins for the business. And I think that -- when we look at what's going on underneath all the various pieces coming together, really, the key to unlocking that is Neutron, right? We've got to get Neutron's first flight off. We've got to pivot that into production. And when we do, there's a lot of very positive things that happen to the P&L. And then lagging that by perhaps 18 to 24 months is the strong cash flow generation that will come after we've had the opportunity to build out the fleet of Neutron, as Pete talked about earlier, where it looks much like a fleet of aircraft. So we think we've got all the right kind of levers in place. It's just a matter of executing. And again, I don't think you should be expecting any sharp kind of changes to our margin profile. I think it should be relatively straightforward model. I don't think there are any big surprises that are looking anywhere. Suji Desilva: That's very helpful color there. And then maybe this one is bigger picture for Pete, and it could be a bit of reach because you're not the first company to think about when you think about lunar missions. But Peter, are there any opportunities that Rocket Lab intercepts with everything that you guys can talk about NASA Impact that we're not maybe realizing but should? Or is that something that maybe is other companies more so than you guys? Peter Beck: Yes. It's probably other companies than us in some areas. We are obviously a provider of a lot of critical hardware for many of those companies. So for the Lunar stuff, I think we kind of prefer to be the picks and shovels behind those missions rather than those headline those missions. It's kind of a bit of a tricky one because typically, those programs have been a little bit wobbly in the fact that we're going to the moon, no, we're not going to the moon, now we're going to Mars. Now we're going back to the moon. Now we're going back to. So I just don't want to get whipsawed and have those big contracts in the mix getting whipsawed backwards and forwards. For example, where gateway got canceled. And then the commercial space stations got completely changed. And I don't know, it's just those are core programs, but it's very easily whipsawed around. So we much prefer to play a quiet a role. Now in saying that, there's certainly some projects with respect to Mars that we're very vocal about. Mars Telecommunication Orbit, I think, is one that more recently that we've talked about a lot in the Mars sample return missions. So where we see those missions that have strong proven funding and that are relatively uncontentious from changes of administration and all those kind of things, then we'll go after them. But I'm not less keen to chase the shiny things that can be a little bit less certain. Operator: We will take our next question. And the question comes from the line of Ryan Koontz from Needham & Co. Ryan Koontz: Great. Just a quick question here. Thinking about your recent additions to the portfolio with Mynaric and the gas electric propulsion. One, first part is like how do you think that improves your competitive position in the broader landscape? And then secondly, your ability to compete financially in the big picture, thinking kind of multiyear strategic level. I appreciate your thoughts there. Peter Beck: Yes. Thanks, Ryan. Well, I think some of these acquisitions are just driven by pure pain. If we look back through some of our programs, the things that caused a lot of pain for us were things like electric propulsion that was constantly late, constantly expensive and just not great solutions. And Monarch was slightly different. great technology just always struggled with respect to delivery. So some of these things are just driven from pain. Now of course, owning those things means that you can resolve the pain, and that puts you in a much stronger competitive position, both from an on-time delivery or faster time line delivery. And then, of course, when they're all vertically integrated, the cost structure is much more effective as well. So being vertically integrated and owning these really critical unique key pieces of the space ecosystem naturally gives a competitive advantage. Adam Spice: Yes. And I'd add one more thing to that. I mean I think we have a very tangible example of the benefits that it can yield. If you look at our Tranche 3 win that we had for the $860 million, one of the main reasons why we think we prevailed in getting award there is because of our level of vertical integration, -- and if you look at the margins that we model for that, which are very much in line with our Space Systems platform business, I think they look quite different than people who won similar awards that aren't as vertically integrated. So not only does it position us to win because the customer can have more confidence that we're going to deliver on schedule with performance that we commit to because we own the whole platform or more of the whole platform. It just also puts us in a much stronger position to win financially as well because we just -- we can turn what would otherwise be a pretty lackluster kind of financial profile of program into something that's actually quite strong. So I think it's really important at both levels, first and foremost, strategically enabling us to just execute on programs. And then when we do it, to give it the kind of returns that we and our shareholders expect. Operator: Your next question comes from Andre Madrid from BTIG. Unknown Analyst: This is [ Ned Morgan ] on for Andre this afternoon. Could you guys just size up how much of Space Systems revenue is being consumed internally versus third parties this year? And then moreover, how that could trend over time? Adam Spice: So I guess I think if I understand your question correctly, you're saying what percentage of our -- if you look at a spacecraft that we're delivering, say, for example, to SDA, what percentage of that would be vertically integrated BOM versus third-party procured? Is that what you're asking? Unknown Analyst: I mean, I guess more so I was thinking about with the electric thrusters, you guys are using those on your -- that business line you're building out is going to support your SDA satellites. How much of your internal production at Space Systems is supporting your programs versus others? Adam Spice: That's an interesting question. I would say -- I mean Yes, it depends. If you look at our solar business, for example, right? I would say that we don't yet consume a majority of our solar capacity for our internal programs. That's still very much a program -- sorry, a platform or a line of business where the majority of the revenue is coming from other satellite manufacturers that we sell to like Lockheed and Airbus and others. If you look at things like electric propulsion for G, that's going to be disproportionately internally focused initially because we're going to prioritize that for our key strategic programs. But make no mistake about it, every line of business, every product that we develop is designed to not only meet our internal needs, but also serve the merchant market. So I would say that, yes, it really depends by platform. Again, solar is low, gas will be high. When we think of things like reaction wheels, I would say the vast majority of our production actually goes to third parties versus internal supply. So yes, there's really no, I'd say, holistic number that I can give you that would be helpful. It's just kind of a case-by-case kind of product-by-product kind of look. Unknown Analyst: Okay. And then one more, just trailing back to how big HA and hypersonics in general could be. I guess what would make you decide to broaden your hypersonic offerings beyond just HSE? I know there's some other programs like MC XL out there. I was just curious if you have any interest in those. Peter Beck: Yes. I mean I think we have kind of interesting exposure across a wide field of stuff. So the HC is obviously a very, very specific requirement. And we are obviously involved in SBI as well. So yes, I mean, I think we view it where we can add the most amount of value and we are strategic for us. And as various programs rise, we always take a good solid look and sort of make decisions based on those factors. Adam Spice: Yes. I think that if I could kind of wave a magic wand and come up with ideal mix, I would -- and I talked about this a few years ago when I was meeting with folks, it was like if we can get to the point where HASTE represented, let's say, the base business for the Electron platform that got us to our target margins, which was, as we've talked before, about 24 launches a year. If we could have 24 launches a year be HASTE that covers really the nut for that business and gets us to absorbing a lot of the overhead and everything else becomes gravy and really additive to margin, that would be the place where we want it to land. Now could it get there? I think there's a possibility of that. I mean this year, if you look at the mix of HASTE launches this year out of our total manifest, it's sitting at around a little between 20% and 25% of the mix is going to be haste. So there'd be a little bit of work yet to get to that kind of a baseline of, say, 2 HASTE launches a month. But I would say also, as I mentioned earlier, it doesn't just have to come from U.S. programs. There's a good chance it's going to be coming from lots of different places. Operator: Your next question comes from the line of Jeff Van Rhee from Craig-Hallum Capital Group. Unknown Analyst: This is [ Vijay ] on for Jeff. I'll keep it to one. On subsystems, how are you tracking the progress post acquisition? Is it how much cost you're able to take out? Is it how much you can increase margins? How much you can scale production? Just kind of what are you look at there? Peter Beck: Yes. It depends a little bit on the business, Vijay, like some require a lot more work than others. Generally, historically, we've acquired very profitable little companies. And the Rocket Lab housing, as Adam called it, is relatively limited to black ball snack machines and t-shirts versus complete financial restructure. But I would say that Mark is certainly one of those that is going to take a lot more work. But consistent that's comments around our financial model, we have very clear gross margin targets. And these business units are run almost as their own entities. I treat them actually like start-ups. So they have to come pitch to me for money. They're expected to grow a certain amount every year. And whether they do that through selling more products or creating new products, that's their business. But we very much run them fast and hard and like start-ups, and that's worked out really well for us. Operator: There are no further questions. I would like to hand back for closing remarks. Peter Beck: Great. Thanks very much, everybody, and thanks for joining us today, and we look forward to sharing more exciting updates in the months ahead. So thanks very much. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good afternoon, and thank you for standing by. Welcome to Grove Collaborative Holdings, Inc.'s First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. Hosting today's call are Grove's CEO, Jeff Yurcisin; and CFO, Tom Siragusa. Some of the statements made today about future prospects, financial results, business strategies, industry trends and Grove's ability to successfully respond to business risks may be considered forward-looking, including statements relating to the first quarter of 2026, representing the revenue trough for the year. Our 2026 strategy, revenue and operating leverage growing sequentially throughout the year, scaling of future customer acquisition costs and prioritizing paybacks and lifetime value, gradually increasing advertising expense and guidance for 2026, including guidance relating to revenue and adjusted EBITDA. Such statements are based on current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including those risks discussed in Grove's filings with the Securities and Exchange Commission. All these statements are based on Grove's views today, and Grove assumes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. During today's call, Grove will also discuss certain non-GAAP financial measures, which adjust GAAP results to eliminate the impact of certain items. You'll find additional information regarding these non-GAAP financial measures and a reconciliation of those non-GAAP items to the most directly comparable GAAP financial measures in Grove's earnings release, which is also available on Grove's Investor Relations website. I would now like to turn the call over to Jeff Yurcisin to begin. Jeff Yurcisin: Thank you, operator, and thank you all for joining us. A year ago, we were navigating a platform migration that effectively broke our customer experience and weighed on our results throughout 2025. Throughout the year, we made deliberate choices to protect liquidity and profitability while we repaired it. Those choices are reflected in the results we are reporting today. The first quarter performed ahead of our expectations. Net revenue was $36.2 million and adjusted EBITDA was $0.3 million, our second consecutive quarter of positive adjusted EBITDA, reflecting the foundation we built in 2025. The cost structure is more efficient, the customer experience is improving, and we are seeing green shoots as it relates to recent cohort behavior, giving us further conviction that we expect the first quarter of 2026 represents the revenue trough for the year. What this means for Grove is this: The platform disruption that defined 2025 is largely behind us, and Grove is turning the page. The work ahead is about growth, deepening our authority in human health, reaccelerating advertising spend responsibly and translating a stronger customer experience into durable momentum. That is a very different and more optimistic conversation than the one we've been having for the past several quarters, and I want to make sure that comes through clearly today. Let me emphasize, we expect net revenue in the first quarter of 2026 to be the bottom, and we're seeing the evidence. Repeat order rates among recent cohorts have recovered to levels consistent with what we saw before the migration. The effectiveness of our advertising is proving strong at the current scale, and we're ready to accelerate from here. Because of this progress, it gives us confidence to raise our top and bottom line guidance, which Tom will discuss more later on. Let me take a step back and discuss what Grove is and what we are building toward. Grove is the leading curated destination for clean, sustainable, nontoxic products for every room in the house. Our addressable market is the 57 million conscientious consumers who want to make healthier choices for their families and the planet. Behind that curation is a deeper conviction that the products in your home are not just a lifestyle choice. They are an important health decision. Every dish soap, every lotion, every cleaning spray that contains synthetic chemicals or harmful microplastics is a small but cumulative exposure that adds up over a lifetime. Grove exists to make those decisions easier, safer and more trustworthy for the families who care, and we back that promise with more than 10,000 banned or restricted ingredients, including more than 3,000 that are outright banned across every category we carry, the most stringent standards we know of in the industry. The opportunity in front of us has never been clearer. Translating that opportunity into durable, profitable growth is what 2026 is about. Our strategy is straightforward: maintain profitability discipline and reaccelerate growth responsibly as platform improvements take hold. As we have done throughout this transformation, we are organizing our progress around 4 strategic pillars, and I want to walk through each of them. Starting with sustained profitability. We delivered adjusted EBITDA of $0.3 million in the first quarter. This is our second consecutive quarter of positive adjusted EBITDA, and it matters because it demonstrates cost discipline at the expected revenue trough. We expect revenue to grow sequentially through the year. And as it does, we expect the operating leverage in the business to follow. A meaningful contributor to that margin performance is Grove Green Rewards, the loyalty program we launched in the fourth quarter. The program has enabled a structural shift in how we approach promotions, moving away from broad discounting and free gifts towards rewards-based incentives that deliver a higher gross margin while still giving customers a compelling reason to shop at Grove. Gross margin of 54.8% was up 180 basis points year-over-year, and we believe this represents a durable improvement. The program also gives us more flexibility in how we structure new customer acquisition offers, which becomes increasingly important as we reaccelerate advertising investment through the year. The next pillar is balance sheet strength. We continue to manage the balance sheet with discipline. We ended the quarter with $10.4 million in cash, cash equivalents and restricted cash. Operating cash flow was negative $0.7 million, primarily reflecting an increase in inventory during the period. This is a substantial improvement compared to the negative $6.9 million in the prior year period. The third pillar is revenue growth. Net revenue of $36.2 million was down 16.8% year-over-year. We expect sequential improvement from here, driven not by any single initiative but by several improvements that are compounding together. Let me walk through each. The redesigned mobile app, which we launched in February, is the most visible milestone of the quarter. We rebuilt a custom application that restores the reliability and functionality our customers expect after the disruptions associated with our third-party approach following the e-commerce migration last year. Mobile application orders represent approximately half of non-auto ship orders and the app is a primary interface through which customers manage their subscriptions. In other words, the app is central to engagement and retention and having a stable, high-quality app is a prerequisite for the revenue growth and advertising reacceleration we are planning. The early response has been encouraging with 5-star app reviews that reflect a meaningfully better experience. On subscriptions, we are making progress on the improved subscription experience. Subscriptions drove 60% of our revenue in '25 and were present in 79% of total orders. So the experience of managing a subscription, modifying orders, adjusting frequency, adding or removing products is one of the most important interactions a customer has with Grove. Our near-term focus is building a world-class subscription experience, one where customers can reliably stock their home with products they trust on a schedule that works for them. We remain committed to delivering a meaningfully improved subscription experience by the time we report second quarter results. On advertising and customer acquisition, we maintained disciplined investment in Q1, consistent with our strategy to prioritize stabilization before reaccelerating spend. What gives us confidence in gradually increasing investment is the quality of what we are seeing in our underlying metrics. Early life cycle repeat order rates among recent cohorts have performed at levels consistent with what we saw prior to the platform migration. Customer acquisition costs and marketing efficiency have also improved to the point where we believe an increase in investment is justified. It's the strength of these new cohorts that are justifying the increased spend and reinforce confidence in expected sequential growth. Our fourth and final pillar is environmental and human health. I want to spend a moment here because the progress we made is helping us build the kind of authority that will define Grove's position in human health. Every product a family brings into their home is a quiet health decision, one most people don't realize they're making. That's the foundation of our human health world view and is why we are making a strategic commitment to deepen our scientific infrastructure across three developing fronts in the first quarter. First, we onboarded a Chief Medical Adviser to guide our health-first approach. Second, we are in the process of establishing a Human Health Advisory Council of experts to guide our ingredient standards and help ensure our vetting evolves with the science. And lastly, we are onboarding physician advisers to translate that science into practical insights and everyday choices that shape a healthier home. These initiatives represent a strategic commitment to scientific rigor. It is how we help to ensure that when a customer trusts Grove, that trust is backed by something real. Lastly, in February, the Oceanic Preservation Society produced The Plastic Detox, a Netflix documentary about the human health consequences of everyday microplastic exposure. The conversation about what is in household products and what it does to human bodies is crossing into the mainstream, and Grove has been building towards this moment since our founding. Alongside the film, Grove and the Oceanic Preservation Society launched The Unplastic Shop, a curated assortment of products vetted to reduce everyday exposure to plastics and endocrine disrupting chemicals. We believe the convergence of consumer awareness, emerging science and regulatory momentum around ingredients, microplastics and chemical safety is one of the most significant long-term tailwinds available to Grove. And the investments we're making now in clinical expertise, scientific governance and consumer education are how we earn the right to lead that conversation at scale. The progress across all 4 pillars in Q1 reinforces our conviction that the foundation is in place and the path forward is clear. Finally, as we have stated previously, we continue to evaluate strategic options that could accelerate our path to scale, strengthen our competitive position or unlock additional value for shareholders. Any action we take will be guided by the same principles that shape how we operate every day, customer focus, capital efficiency and shareholder value creation. In closing, our goal for '26 is straightforward: deliver sequential revenue growth through the year while maintaining discipline on the bottom line. The work in front of us is clear. The team is executing with urgency, and I'm more optimistic and confident than ever that we're building something that will matter for our customers, our shareholders, our public benefit and the families we serve. With that, I will turn it over to Tom to walk through the financials in more detail. Tom, go ahead. Tom Siragusa: Thank you, Jeff, and welcome, everyone. I'm encouraged by what the numbers are telling us. Repeat order rates among recent cohorts have recovered to levels consistent with what we saw prior to the e-commerce migration. Customer acquisition costs and unit economics have improved. Gross margin is expanding in a way that reflects structural change. And across the organization, there is tangible momentum. Our teams are executing against a clear strategic road map. Turning to the results. Starting with the top line. Net revenue for the first quarter was $36.2 million, down 16.8% year-over-year. The decline was primarily driven by fewer orders, reflecting a smaller active customer base entering the year. Similar to prior quarters, that smaller base is the compounding result of lower advertising investment in prior periods and customer attrition associated with the 2025 e-commerce platform disruptions. DTC total orders were 502,000, a decline of 19.2% year-over-year. Active customers totaled 553,000 at quarter end, down 18.5% versus the prior year. These declines reflect the lagging effects of reduced advertising investment in prior periods and customer attrition from the 2025 platform disruption. DTC net revenue per order was $67.79, an increase of 2% year-over-year. The increase was primarily driven by more targeted promotional strategies, including the shift to loyalty-based incentives through Grove Green Rewards and a larger mix of higher-priced items and customer orders, as we continue to expand our assortment in categories such as clean beauty, personal care and wellness. Gross margin was 54.8%, an increase of 180 basis points compared to 53% in the first quarter of 2025. The improvement was primarily driven by the shift to more targeted promotional activity enabled by Grove Green Rewards, which has allowed us to move away from broad discounting and free gifts, toward more efficient rewards-based incentives. We believe this represents a durable improvement, and it is one of the proof points in the quarter that the business model changes we have made are translating to improved financial performance. Turning to advertising. We invested $1.2 million in the quarter, a 58.6% decrease year-over-year, but in line with fourth quarter spend levels as shared last quarter. This reflects a deliberate choice to preserve liquidity and drive profitability. As the customer experience improvements Jeff described previously take hold, we expect to gradually increase investment through the year. The current trends we are seeing in customer acquisition costs and repeat order rates give us confidence in the returns on that investment. Product development expense was $1.4 million, down 19.4% year-over-year, reflecting a decrease in consulting expenses related to the e-commerce platform migration and lower owned brands development. At present, we have been more selective in owned brand innovation, prioritizing resources towards stabilizing and improving our core technology and customer experience. SG&A was $18.2 million, a 17.4% decrease versus the prior year. The reduction was driven by the full quarter benefit of the reduction in force executed in November 2025, lower fulfillment costs from fewer orders and ongoing cost optimization across the organization. Net loss was $1 million or a 2.8% net loss margin compared to a net loss of $3.5 million or an 8.1% net loss margin in the prior year. The year-over-year improvement reflects gross margin expansion and lower operating expenses flowing through from the structural changes we have made over the past several quarters. Adjusted EBITDA was positive $0.3 million or a 0.8% margin compared to negative $1.6 million or a negative 3.7% margin in the prior year. The year-over-year improvement reflects the gross margin expansion and lower operating expenses, consistent with the net loss improvement. This is our second consecutive quarter of positive adjusted EBITDA. Delivering positive adjusted EBITDA at the revenue trough is the result of deliberate choices made throughout 2025 to protect the financial foundation of the business. Turning to the balance sheet and liquidity. We ended the quarter with $10.4 million in cash, cash equivalents and restricted cash, a decrease from $11.8 million at the end of the fourth quarter, primarily reflecting cash used in operating and investing activities, including the development of our recently launched mobile application. Furthermore, we ended the quarter with $1.7 million of availability under our asset-based loan facility, an increase from $1.1 million at the end of the fourth quarter due to an increase in inventory. We are comfortable with our liquidity position relative to our operating plan. Operating cash flow was negative $0.7 million, reflecting working capital usage in the quarter, primarily an increase in inventory to support ongoing operational execution. This compares favorably to negative $6.9 million in the prior year period, which included a larger net loss net of noncash items, working capital investment and other one-time items that did not reoccur. Now turning to our outlook. The first quarter came in ahead of our expectations on both revenue and adjusted EBITDA, and we are continuing to see sustained momentum from the underlying business drivers discussed. Therefore, we are raising the top and bottom line guidance. For full year 2026, we now expect net revenue of $142.5 million to $152.5 million, an increase from $140 million to $150 million and adjusted EBITDA of breakeven to positive low single-digit millions, an increase from approximately breakeven. Furthermore, on revenue, we still expect the first quarter to represent the trough for the year with sequential improvement in each remaining quarter. In closing, the first quarter reflects the financial discipline we committed to at the start of the year, protecting liquidity at the expected trough while laying the groundwork for the growth we expect to follow. The cost structure is more efficient. The unit economics are improving, and we are managing cash flow consistent with our liquidity. I'm encouraged by where we stand, and I remain confident in our ability to deliver on the plan we laid out for 2026. With that, I will turn the call back over to Jeff for closing remarks. Jeff Yurcisin: Thank you, Tom. I want to close by reflecting on where we are in this journey. A year ago, we were navigating arguably the most disruptive period in Grove's history, managing through platform instability and making difficult choices that we believe would pay off. Where we stand today, the customer experience is improving rapidly, the unit economics are moving in the right direction, and the mission we've been building toward helping families make healthier choices for their homes through rigorous curation, scientific authority and genuine transparency has never been more relevant or timely. This is what gives me the most confidence in the path forward since stepping into this role, not just the sequential revenue growth we expect to deliver through the year, but the longer arc of what Grove is becoming, the trusted destination for families who care about what comes into their home. We're building something that matters, and I look forward to demonstrating our progress in the quarters ahead. Operator: [Operator Instructions] Our first question today is coming from Susan Anderson from Canaccord Genuity. Alec Legg: It's Alec on for Susan this evening. Nice job, by the way. I guess to start, can you walk through how 1Q performed? You mentioned it was outperformance and first quarter has been pretty interesting. On one hand, we have the Iran conflict that started in late February. And then just for you guys, you had the app experience and then the Netflix documentary. I guess what changed and led to the outperformance in the first quarter? Jeff Yurcisin: Appreciate that, Alec. I will kind of kick off. First, it goes back to the customer experience. So we delivered $36.2 million. Gross margin expanded by 180 basis points year-over-year. And both of those 2 metrics and the stability of our cohorts are driven by the improved customer experience. We launched Green Grove Rewards, which has improved our underlying gross margin structure while delivering a best-in-class loyalty program to customers that's flowing through the gross margin line. But from a revenue line, like this app relaunch, 5-star reviews are back. Customers are loving the app again, and we are seeing very strong signals in all of the data that we look at in terms of sessions and conversion. So I would say those are the two big customer experience drivers that are impacting both the stabilization of revenue and also the improvement in gross margin. Alec Legg: And then the app issue, I guess, drilling down, when was that fully resolved? Was that in March? Jeff Yurcisin: So roughly mid-February, like we always have rolling releases, but mid-February. And what we've also seen is just really some phenomenal strength in these early cohorts. And again, I think the best e-commerce companies are measuring not just the acquisition cost, but that ratio between LTV and CAC, and we are measuring repeat rates and third orders. And just all of the early signals look quite positive since that mobile relaunch and our push into human health. The shift into talking about and weaving the human health story into our content, both on the website and an e-mail and all different touch points, I think, has also been critical to our -- showing up in a more meaningful way for our customers. Alec Legg: Got it. And then on gross margins, I know it had a pretty nice jump up. Was there any other drivers besides the loyalty program helping manage pricing? Just any details there. Jeff Yurcisin: Yes. I think we're just operating more efficiently. Like now that this platform migration is truly behind us, we're able to find smaller, more nuanced ways to improve and invest in our kind of processes. So I would say the primary driver is, of course, the reduced discounting and the different type of economics, but we're also seeing strength at the AOV, the average revenue per order line and all of these are pointing in the right direction. Alec Legg: Got it. Is this gross margin level, you think the new normal kind of like a rebased upward? Is that how we should think about it going forward? Jeff Yurcisin: Yes, I think -- well, I wouldn't say -- I don't want to use the phrase the new normal, but I think we believe that there is continued opportunity to run this business efficiently and that requires a gross margin comparable to what you're seeing today. Alec Legg: Understood. And then on the Green Rewards program, I know it's still -- it's a couple of months in. I guess how has the initial sign-up been? Have you been able to get most of the active customers onto the program? And then any details on getting people to convert to the VIP tier? Jeff Yurcisin: Great question. So still, a majority of our active customers are members of our rewards program. And then I would just say that in terms of new customers, we're not disclosing any numbers there. But at the core, we are seeing strong improvement year-over-year in adoption rates from new customers, into the VIP part of the program. Alec Legg: Got it. And then my last question on tariffs. I guess, have you been impacted by the IEEPA tariffs at all? If so, are you able to quantify how much that was? And any updates on the potential refund, if so? Jeff Yurcisin: I love it... Alec Legg: Sorry. Everyone's gotta ask about tariffs this quarter. Jeff Yurcisin: No, all good. Our '26 guide assumes continuation of current trade policy. Nothing in our guidance kind of assumes anything. And then, of course, just like all other brands that were impacted by tariffs, we will be pursuing the type of clawback, but no update to kind of guide towards. Operator: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments. Jeff Yurcisin: I want to thank everyone again for joining our call. Hope you all have a great night. Thank you. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
Operator: Hello, everyone, and thank you for joining us, and welcome to Cardlytics' First Quarter 2026 Financial Results Call. [Operator Instructions] I'll now hand the conference over to Nick Lynton, Chief Legal and Privacy Officer. Please go ahead. Nick Lynton: Good evening, and welcome to the Cardlytics First Quarter 2026 Financial Results Call. Before we begin, let me remind everyone that today's discussion will contain forward-looking statements based on our current assumptions, expectations and beliefs, including expectations around our future financial performance and results, including for the second quarter of 2026, our capital structure and operational and product initiatives. For a discussion of the specific risk factors that could cause our actual results to differ materially from today's discussion, please refer to the Risk Factors section of our 10-Q for the quarter ending March 31, 2026, which has been filed with the SEC. Also during our call, we will discuss non-GAAP measures of our performance. GAAP financial reconciliations and supplemental financial information are provided in the press release issued today, which you can find on the Investor Relations section of the Cardlytics website. Today's call is available via webcast, and a replay will also be available on our website. On the call today, we have CEO, Amit Gupta; and CFO, David Evans. Following their prepared remarks, we'll open it up for your questions. With that, I'll hand the call over to Amit. Amit Gupta: Good evening, and thank you for joining us. As I mentioned on our last call, 2026 is a year of execution for us. Our performance in Q1 reinforces our confidence that we can operate efficiently with a lower cost basis and still deliver on our stated business objectives. Our strategic priorities remain consistent. First, expanding our reach by deepening collaborations with bank partners and integrating new publishers into our network; second, driving incremental revenue growth for our advertisers by leveraging our advanced algorithmic and geo-centric capabilities; and third, continuing to invest in our technology platform to further differentiate our offering and improve operational efficiency. We are also benefiting from the addition of experienced go-to-market and FI-facing leaders who are helping us elevate our performance across several key areas. Let me start with our network and supply. After a prolonged period, we are pleased to report that our supply has stabilized and many of our existing FI partners are actively engaging with us to co-develop growth opportunities. For example, building on strong program performance and positive customer response, we will onboard new cardholder portfolios with one of our larger FI partners later this year. This momentum reflects the strength of our advertising content, the quality of our platform and the collaboration between our FI partners and our internal teams. Additionally, we are partnering with banks to better market and enhance reward amounts being paid out to their customers. In the case of one of our newer neobanks, the Double Days program continues to be a lever for increased consumer engagement and drove 0.25 million new activators during the event. We are expanding similar incentive programs with other FI partners. These engagement-focused programs tend to be adopted first by our newer banks, shifting more volume to these banks and leading to a more favorable revenue margin overall. Our push to meet new customers where they are continues. We continue to see interest in the Cardlytics Rewards Platform or CRP, from partners across multiple industries. We currently have three live CRP partners. And while still early, we are seeing month-over-month supply growth. We are also in discussions with larger partners about implementing CRP, and we'll share more as we make progress. Turning to our advertiser base. In Q1, we received a strong signal from our cohort of new enterprise advertisers that they valued our measurement, network reach and technology forward platform capabilities over our competitors. Our focus on new business is translating into meaningful year-on-year pipeline growth, and we expect it to be impactful in our U.S. business throughout the year. In Q1, we saw strong performance from the telecom, gas, and convenience verticals. One of the fastest-growing discount grocers following a successful Q1 campaign and strong iROAS performance is renewing in Q2 and is on track to become a top 10 advertiser for us this year. Several leading advertisers in our channel prefer the quality of our analytics and the reach of our network and have decided to consolidate CLO spend with Cardlytics despite the supply constraints. This has been a recurring narrative amongst our clients and reinforces the value that our multi-FI network can provide. To augment our measurement capabilities, we are adding new measurement partners to our network to support advertisers with their preferred measurement model of choice. At the same time, we continue to invest in offer performance and ad ranking. Optimization experiments in Q1 are driving higher activation and redemption rates, and we're seeing double-digit growth in redeemers across banks with stable supply. Feedback from advertisers continues to reinforce that we outperform other alternatives. Our U.K. business continues to deliver outstanding results with Q1 revenue surging over 21% year-over-year. This momentum highlights our omnichannel strength, particularly with the restaurant and retail sectors. We are proud to have served all of the U.K.'s largest grocers on our platform during the quarter. In the U.K., advertiser sentiment remains strong as we diversify our footprint. This allows partners to rely on Cardlytics as a single destination for high-quality relevant content for their card members. Turning back to the U.S. Due to macro events, we are seeing some budget pressure in the travel and hospitality sectors with approvals being delayed or pushed into future quarters. Overall, with supply stabilizing and execution improving, we believe we are well positioned for sequential growth. Turning to our technology platform. The work we did in 2025, particularly in data and AI is now delivering measurable impact. Our engineering efforts are improving both speed and efficiency across the platform. For example, our newly released Insights agent delivers weekly unique advertiser reports synthesizing macroeconomic data, industry trends and Cardlytics-specific insights. Our new campaign data sync infrastructure, starting with impact.com enables our sales team to share performance data with measurement partners for advertiser accounts in minutes rather than days. We standardized on a unified agentic development environment with common AI skills and MCP servers, giving our engineers AI-assisted tooling across the full development life cycle. We are now tracking development productivity metrics to measure adoption and scale these games. Now looking forward, with the Bridg transaction successfully closed, we are now fully aligned around our core platform with improved financial flexibility and the ability to move faster. Our focus remains on disciplined urgent execution against our strategic priorities. I'll now turn it over to David to discuss the financials. David Evans: Thank you, Amit. As we talked about on our last earnings call, our core focus and strategic plan we set up for 2026 is quarterly sequential growth and self-sustainability. We are pleased to announce Q1 numbers that are above the midpoint of the guide across all metrics, including for the Q1 Bridg results. Our Q2 guide further represents and supports quarterly sequential growth. We have also taken another step towards self-sustainability since acquiring and quickly selling the PAR shares we received in consideration for the divestiture of the Bridg business, further improving our state of liquidity and balance sheet. Turning to Q1 results. For awareness, I will speak first to results and year-over-year comparisons from continued operations, which exclude Bridg results, followed by Q1 numbers that are inclusive of the Bridg operations, given these totals were included in our Q1 guidance. Bridg specific results can be found in the 10-Q and the earnings release. Also, the comments will be year-over-year comparisons to the first quarter of 2025, unless stated otherwise. In Q1, our billings were $58.1 million, a 37% decrease year-over-year. Total billings, inclusive of Bridg Results was $62.3 million. Despite the departure of Bank of America in January, we were able to retain the vast majority of our clients and are seeing results of our focus on driving new business to the platform. Q1 revenue was $34.3 million, a 39% decrease year-over-year. Total revenue, inclusive of Bridg results was $38.5 million. As Amit mentioned, our U.K. business remains a standout performer with Q1 revenue increasing over 21% year-over-year. Q1 adjusted contribution was $19.7 million, a 28% decrease year-over-year. Total Q1 adjusted contribution, inclusive of Bridg results was $23.3 million. Despite year-over-year decline, we continue to expand our revenue margin or adjusted contribution as a percentage of revenue to 60.6%, our highest on record. However, we do expect this to come down in future quarters due to the divestiture of Bridg. Q1 adjusted EBITDA was positive $0.2 million compared to negative $4.1 million in the first quarter of 2025. Total Q1 adjusted EBITDA, inclusive of Bridg results was negative $2.2 million. This improvement in adjusted EBITDA underscores our ability to execute towards our goals with a lower expense base. Q1 adjusted operating expenses was $19.5 million, a decrease of 38% from prior year. Total Q1 adjusted operating expenses, inclusive of Bridg was $25.5 million. This was largely due to reduction in force actions taken in 2025 and optimization of our cloud infrastructure. Q1 operating cash flow was negative $5.6 million compared to negative $6.7 million in the prior year. Free cash flow was negative $7.9 million compared to negative $10.8 million year-over-year, an improvement of $2.9 million. On the balance sheet, we ended Q1 with $35.7 million in cash and cash equivalents. Subsequent to the quarter closing, we liquidated all the PAR shares we received in connection with the Bridg sale. We used the proceeds to reduce the amount owed under our credit facility and improve our cash position. Our MQUs for the quarter were $197 million, accounting for the loss of Bank of America in January. ACPU for the quarter was $0.10, down 21.3% year-over-year. Now turning to our outlook for Q2 2026. All comparisons to prior year and prior quarters will exclude Bridg. For Q2, we expect billings between $61 million and $67 million, revenue between $35 million and $40 million, adjusted contribution between $20 million and $23 million and adjusted EBITDA between negative $2.7 million and positive $1.3 million. Our guidance represents quarterly sequential growth of 10%, 9% and 9% for billings, revenue and adjusted contribution, respectively, and excluding Bridg numbers in Q1 for comparison purposes. We continue to be committed to delivering sequential growth for the remainder of 2026. Our adjusted EBITDA guide further represents our belief in our ability to execute at a lower expense base, and we remain committed to driving operational efficiencies. We are laser-focused on executing against our core competencies to drive sequential growth in 2026. I will now turn it back to Amit for closing remarks. Amit Gupta: We're moving forward with a stronger foundation to operate the leading purchase intelligence platform. Our team is heads down executing on our strategic priorities to deliver value for our advertisers, partners, shareholders and end consumers. I'll now turn it over to the operator to begin Q&A. Operator: [Operator Instructions] There are no questions at this time. I will now turn the call back to Amit for closing remarks. David Evans: I'm not sure if Amit is coming through, but I can jump in here for closing remarks. I would reiterate for all of our listeners that as we stated at the beginning, we are executing against the plan that we set forth at the beginning of the year, which is to operate through 2026 showing sequential growth as well as being able to show and perform with self-sustainability. Amit, if you are back on, you want to have any other closing remarks or otherwise, we can conclude the call. But Amit, I'll turn it to you if you can hear us. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Welcome, ladies and gentlemen, to the First Quarter 2026 Earnings Conference Call for Organogenesis Holdings, Inc. [Operator Instructions] Please note that this conference call is being recorded, and the recording will be available on the company's website for replay shortly. Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A, Risk Factors of the company's most recent annual report and its subsequently filed quarterly reports. You are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. I would now like to turn the call over to Mr. Gary S. Gillheeney, Sr., Organogenesis Holdings President, Chief Executive Officer and Chair of the Board. Please go ahead, sir. Gary Gillheeney: Thank you, operator, and welcome, everyone, to Organogenesis Holdings First Quarter 2026 Earnings Conference Call. I'm joined on the call today by Dave Francisco, our Chief Financial Officer. Let me start with a brief agenda of what we'll cover during our prepared remarks. I'll begin with an overview of our first quarter revenue results and provide an update on key developments in recent months. Dave will then provide you with an in-depth review of our first quarter financial results, our balance sheet and financial condition at quarter end as well as our financial outlook for 2026, which we updated in our press release this afternoon. Then I will provide you with some closing comments before we open the call up for questions. Beginning with a review of our revenue results for Q1, our revenue results reflect the significant challenges in the operating environment outlined on our fourth quarter call in February. Net revenue declined 58% year-over-year, driven by a 63% decline in sales of our Advanced Wound Care products. Sales of our Surgical & Sports Medicine products were flat year-over-year. And as expected, the withdrawal of the LCD coverage policies for skin substitutes announced on December 24 and comments regarding discarded products on December 30, resulted in clinicians' confusion and material disruption in the market during the first quarter. Our team performed well during this period of unprecedented disruption in the skin substitute market. As a leader in the industry, we expect to gain share in this new environment as we leverage the largest, most comprehensive portfolio across multiple FDA classifications. Despite the significant decline in our product revenue in the first quarter, we believe we enhanced our market share position as our unit volume outperformed the declines that have been reported across the industry. This is encouraging in isolation, but it's even more impressive when viewed in light of the significant impact on utilization of our PMA-approved product over the first 4 months of 2026 as a result of CMS' commentary on December 30. As discussed on our fourth quarter call, we believe the comments on December 30 regarding product wastage were intended to proactively address activity from certain competitors in the market that were attempting to exploit the new payment policies by focusing on larger sized skin substitute products, specifically amniotic products. The initial market response to these comments was significant clinician confusion and uncertainty. Unfortunately, these market headwinds have not abated. Rather, in some cases, it has resulted in clinicians moving away from skin substitutes entirely. While CMS' December 30 commentary represents what we believe to be a material but transient impact on 2026 revenue trends, the harm to patients is both more severe and enduring. The impact on utilization of our clinically superior PMA-approved skin substitutes doesn't just delay healing, it exposes our most vulnerable patients to preventable complications, infections, amputations and potentially fatal outcomes. This market disruption requires urgent correction. We believe the significant clinician confusion impacting utilization of our PMA-approved products as a result of the agency's comment on December 30 will be less of a headwind as we progress through 2026. We continue to believe CMS' efforts to overhaul coverage and payment for our market represents meaningful steps towards reform. We believe that CMS should clarify the comments on discarded products to stem the unintended impact on patient access to clinically validated skin substitute products, particularly PMA products like Apligraf. While we will continue to engage with CMS on this issue, our level of uncertainty as to the timing of a resolution has unfortunately increased since the fourth quarter earnings call in February. Accordingly, we have updated our expectations for total revenue in 2026 in this afternoon's press release. Our 2026 total revenue guidance now reflects the expectation that we see more measured improvement in clinician confusion and the overall operating environment as we move through the year. While we continue to expect improvement in our revenue results on a sequential basis over the balance of the year, our overall revenue outlook reflects a more measured recovery this year. The prolonged recovery is now expected to impact our financial results over the first 9 months of 2026 with a return to more normalized profitability now expected in the fourth quarter. Given the impact on our revenue expectations as a result of the prolonged recovery, we completed a restructuring in March. The restructuring included a workforce reduction of 88 employees and the closing of operations in our St. Petersburg, Florida facility and is expected to result in cost reductions of approximately $14 million on an annualized basis. While our 2026 is off to a difficult start, I want to make it clear that I am very optimistic about our future. We continue to expect to drive significant market share gains in the second half of 2026, and we remain confident in the long-term opportunity for Organogenesis. Our overall position is very strong, and it is from this strong position that we are making capital investments that will support our company's future growth and continued leadership. Before I turn the call over to David, I wanted to provide updates on some key regulatory and clinical developments in recent months, beginning with an update of our ReNu program. On April 28, we announced the completion of our BLA submission to the FDA. This represents a significant milestone in our effort to bring a new regenerative therapy intended to treat a large and growing unmet need in symptomatic knee osteoarthritis, a serious condition affecting more than 30 million Americans. We believe ReNu has the potential to meaningfully change the treatment paradigm by offering a nonsurgical biologic option designed to address pain and improve functionality, particularly for patients with severe disease who lack an approved nonsurgical option. We initiated a rolling BLA submission in December of 2025 with nonclinical modules and have now completed the application with the submission of the clinical and chemistry manufacturing and control modules. We are confident in the progress of our regulatory engagement, and we look forward to continuing our productive discussions with the FDA during the review process. We believe gathering robust and comprehensive clinical and real-world evidence is an essential component of developing a competitive product portfolio and driving further penetration in the markets where we compete. Science and evidence have always been core to our foundation. And as coverage policies evolve, evidence will be the currency of credibility, and we intend to remain a leader in these markets. On April 6, we announced the completion of a randomized controlled trial evaluating the safety and efficacy of PuraPly AM plus standard of care versus standard of care alone in the management of non-healing diabetic foot ulcers. This was a prospective multicenter randomized controlled trial of 170 patients. The trial achieved its primary endpoint, demonstrating statistically significant wound closure at 12 weeks compared to standard of care alone with a p-value of less than 0.0477. This strong performance is an important study, which underscores the clinical efficacy of PuraPly AM in the management of non-healing DFUs. These wounds pose a significant burden to patients and are extremely costly to our health care system. We believe publication of these impactful results will strongly support PuraPly AM's inclusion in future coverage policies, underscoring its critical role in the wound healing algorithm. Further demonstrating the clinical effectiveness of our PuraPly antimicrobial technology and advancing ReNu represents further validation of our long-term strategy to invest in expanding the body of clinical evidence supporting our technology and developing regenerative medicine solutions that address significant unmet medical needs as we expand our mission to include transformative new markets for Organogenesis. With more than 40 years in regenerative medicine and a diverse evidence-based portfolio of technologies in each FDA category, we believe we are best positioned in the skin substitute market and will continue to be a leader in the space with highly innovative, highly efficacious products that deliver on our mission of advancing healing and recovery beyond our customers' expectations. With that, let me turn the call over to David. David Francisco: Thanks, Gary. I'll begin with a review of our first quarter financial results. Unless otherwise specified, all growth rates referenced during my prepared remarks are on a year-over-year basis. Net product revenue for the first quarter was $36.3 million, down 58% year-over-year. As Gary mentioned, these results came in below the expectations we provided on our Q4 call, which called for total revenue decline of approximately 50% year-over-year. Our Advanced Wound Care net product revenue for the first quarter was $29.5 million, down 63%. Net product revenue from Surgical & Sports Medicine products for the first quarter was $6.8 million, flat year-over-year. Our total revenue results for the first quarter include $1 million of income related to the grant issued from the Rhode Island Life Sciences Hub, offsetting the employee-related costs in our Smithfield facility. This compares to no impact in the prior year period. Gross profit for the first quarter was $10.5 million or 29% of net product revenue compared to 73% last year. First quarter cost of goods included $4.3 million of inventory write-down adjustments for excess and obsolete inventory resulting from a facility closure and LTD regulatory changes of $1 million and $3.3 million, respectively. Excluding inventory write-down adjustments, non-GAAP gross profit was $14.8 million or 41% of net product revenue. Operating expenses for the first quarter were $106.1 million compared to $113.4 million last year, a decrease of $7.3 million or 6%. Excluding cost of goods sold of $25.8 million for the first quarter and $23.7 million last year, our non-GAAP operating expenses were $80.3 million compared to $89.7 million last year, a decrease of $9.4 million or 10%. The year-over-year change in operating expenses, excluding cost of goods sold was driven by a $7.3 million or 10% decrease in SG&A expenses and a $6.6 million write-down of certain nonrecurring expenses, which impacted the first quarter of 2025, offset partially by a $4.5 million or 42% increase in research and development expenses. Operating loss for the first quarter was $68.9 million compared to an operating loss of $26.7 million last year, an increase of $42.1 million. Excluding noncash amortization and certain nonrecurring costs in both periods, our non-GAAP operating loss was $56 million compared to $19.3 million last year, an increase of $36.7 million year-over-year. GAAP net loss for the first quarter was $53.2 million compared to a net loss of $18.8 million last year, an increase in net loss of $34.3 million. Net loss to common stockholders for the first quarter was $56.2 million compared to a net loss of $21.6 million last year. Net loss to common stockholders includes the impact of the cumulative dividend and the noncash accretion to redemption value of our convertible preferred stock. Adjusted net loss for the first quarter was $43.7 million compared to $13.4 million last year. Adjusted net loss excludes after-tax impacts of intangible amortization, write-down of assets held for sale, employee severance and benefits as well as other exit costs associated with the company's restructuring activities and nonrecurring inventory write-down adjustments for excess and obsolete inventory. We've included a detailed reconciliation of GAAP to non-GAAP adjusted loss in our press release this afternoon. Adjusted EBITDA loss for the first quarter was $48.2 million compared to adjusted EBITDA loss of $12.5 million last year. Turning to the balance sheet. As of March 31, 2026, the company had $92.1 million in cash, cash equivalents and restricted cash and no outstanding debt obligations compared to $94.3 million in cash, cash equivalents and restricted cash and no outstanding debt obligations as of December 31, 2025. We believe we are well capitalized with our cash on hand and other components of working capital, availability under our revolving facility of up to $75 million and net cash flows from product sales. Turning to our 2026 outlook, which we updated this afternoon's press release. As Gary outlined earlier, our 2026 total revenue guidance now reflects the expectation that we see a more measured improvement in clinician confusion and overall operating environment as we move through the year. As a result, we now expect total revenue -- net revenue for the full year 2026 of $270 million to $310 million, representing a decline in the range of 45% to 52% year-over-year and compared to our prior guidance range, which assumed a decline in the range of 25% to 38% year-over-year. Note the change in our total revenue expectations is a result of revised assumptions regarding sales of our advanced wound care products. Our updated total revenue guidance continues to reflect the expectations we see sequential improvement in our revenue trends in the second quarter, however, at a more measured rate versus what our prior guidance assumed, resulting in first half revenue decline in the range of approximately 52% to 49% year-over-year. We continue to expect strong sequential revenue growth in both the third and fourth quarters of 2026. However, the low end of our guidance range now assumes a more prolonged recovery in market-related headwinds, resulting in a second half revenue decline similar to the first half of 2026. With respect to our profitability expectations, our updated guidance continues to assume improved quarterly adjusted EBITDA performance on a sequential basis and positive adjusted EBITDA generation in the second half of 2026. Given the lower revenue expectations for 2026 and the related impact on gross profit, we have adjusted our assumptions for operating expenses, excluding cost of goods sold to reduce the impact on our profitability and cash flow this year. Specifically, we now expect to reduce our operating expenses, excluding cost of goods sold, approximately 25% year-over-year in 2026, including more than 30% year-over-year in the second half of 2026. Note these updated assumptions are inclusive of estimated cost savings in the third and fourth quarters related to our recently announced restructuring of approximately $7 million. With that, I'll turn the call back over to Gary for closing remarks. Gary Gillheeney: Thanks, Dave. In closing, the first quarter was a challenging start to the year as expected. I want to thank our team for their performance and resilience during a period of unprecedented market disruption. But despite the headwinds, we believe we've enhanced our market share position, met a significant milestone by completing our renewed BLA submission and generated strong clinical evidence supporting PuraPly AM, further validating our long-term strategy. We expect the operating environment will remain difficult through the first 9 months of 2026 with sequential revenue improvement over the balance of the year and a return to more normalized profitability in the fourth quarter. We remain confident in our position as a leader in regenerative medicine with a diverse and evidence-based portfolio and more than 40 years of innovation in service of our mission to advance healing and recovery for the patients who depend on us most. With that, I'll turn the call over to the operator to open the call up for questions. Operator: [Operator Instructions] Our first question comes from Ryan Zimmerman with BTIG. Iseult McMahon: This is Iseult on for Ryan. I was hoping to start with spending some time on the first quarter performance. Could you unpack a little bit what you guys saw throughout the quarter and particularly what changed between the fourth quarter call in February and today in terms of volumes? I mean what was better or worse than expected? Gary Gillheeney: Sure. I'll start. Well, we've certainly seen a lot of disruption as we expected you normally would see with a change in reimbursement. But the level of complexity of that change was more than we've seen in the past. So you had 2 sites of care with complete changes in the reimbursement model in addition to changing the actual reimbursement for each product. We also had the issue in the first quarter around WISeR. So WISeR really did have an impact in the first quarter. We didn't expect some of the challenges that they've had technology-wise in the states in which pre-authorization is required. There was also an issue with a large MAC that was struggling to process claims the entire first quarter. In fact, we just recently started to process claims for March. And unfortunately, customers have to rebuild for claims in January and February. So all of that disruption on top of what you normally see when there's a reimbursement change. So we've typically guided to a 3-month impact of a reimbursement change. But with the additional complexity that we're seeing now and the issue of wastage, which came out in December 30, has created enormous confusion in the market, which is why this prolonged delay in market recovery. So what we've seen is a contraction of the market by about 63%. That's an enormous contraction in the market. We're certainly down less than that. We believe we've taken share. In fact, our core brands, excluding our Apligraf brand are down about 22%. So we're definitely seeing some share gain from our perspective, but just contraction in the market, the issues around wastage and the technology challenges with the MAC and WISeR are things that we didn't see when we had our call in February. Dave, anything to add? David Francisco: No, no, that's absolutely right. Let them all. Iseult McMahon: I appreciate that. And what, if anything -- or do you have any line of sight as to when we might get an update from CMS clarifying some of their comments around these wastage policies? Gary Gillheeney: We don't have any direct clarity on when they would do that. We're still engaged with them. Our objective is to either get them to exempt PMAs because of all of the confusion around the handling and the billing and usage of a biologic like our product Apligraf or to come out with an indication for use. There's been no instructions or clarity on exactly what their wastage policy is. So we don't have clarity on when they will change or when they'll bring clarity, but we're certainly bringing clarity to our customers, and we're seeing more and more comfort in utilizing the product Apligraf appropriately for patients that need it. Iseult McMahon: Got it. And then last one for me, kind of dovetails into guidance for the year. I was just curious what gives you confidence in that back half recovery? I understand this updated range accounts for more moderation through the remainder of the year. But have you seen anything through April and May that gives you more confidence? David Francisco: Yes. We did see improvement month-over-month in the first quarter, and that's continued into April. So that's one part of it. And what we've always expected here, as Gary mentioned, we're going to continue to gain share. But there's 2 things. One is the customer confusion should abate as we move through the year. And then in addition to that, we think the competition dynamics will be quite a bit different at that point as well. So that's how we've built up our forecast with sequential growth quarter-over-quarter as we move through the year. Operator: We are currently showing no remaining questions in the queue at this time. This does conclude our conference for today. Thank you for your participation.
Operator: Good day, and welcome to QuinStreet's Fiscal Third Quarter 2026 Financial Results Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Vice President of Investor Relations and Finance, Robert Amparo. Mr. Amparo, you may begin. Robert Amparo: Thank you, operator, and thank you, everyone, for joining us as we report QuinStreet's Fiscal Third Quarter 2026 Financial Results. Joining me on the call today are Chief Executive Officer, Doug Valenti; and Chief Financial Officer, Greg Wong. Before we begin, I would like to remind you that the following discussion will contain forward-looking statements. Forward-looking statements involve a number of risks and uncertainties that may cause actual results to differ materially from those projected by such statements and are not guarantees of future performance. Factors that may cause results to differ from our forward-looking statements are discussed in our recent SEC filings, including our most recent 8-K filing made today and our most recent 10-Q filing. Forward-looking statements are based on assumptions as of today, and the company undertakes no obligation to update these statements. Today, we will be discussing both GAAP and non-GAAP measures. A reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release, which is available on our Investor Relations website at investor.quinstreet.com. With that, I will turn the call over to Doug Valenti. Please go ahead, sir. Douglas Valenti: Thank you, Rob. Welcome, everyone. Fiscal Q2 was another quarter of strong performance and progress. We grew revenue 28% year-over-year to a new company record, and we grew adjusted EBITDA 53% year-over-year, also to a new company record. Our core business is strong, and we continue to make good progress on initiatives that we expect to continue to deliver impressive revenue growth and margin expansion in fiscal Q4 and beyond. Those initiatives include dozens of active projects applying AI across our business system to our proprietary data, tech stack, integrations and workflows and to our media campaigns and interactions with consumers. AI is strengthening our already formidable competitive advantages and is driving even better results for clients, media partners and QuinStreet. As a technology-driven company with hundreds of engineers and technical product employees, we are a fast and effective developer and adopter of leading-edge AI technologies and tools. And of course, we have a proven history with AI. We have been developing and applying AI algorithms since 2008. Getting back to fiscal Q3, let me review some of last quarter's accomplishments in more detail. We set a company record for quarterly revenue, $346 million, up 28% year-over-year. We also set a company record for quarterly adjusted EBITDA, $29.6 million, up 53% year-over-year with expanding margins. We continue to be in a strong financial position with a strong balance sheet and strong cash flows. We ended the quarter with over $100 million in cash and with net debt of around $50 million, including all bank debt and seller notes. Our net debt is well less than 0.5x our annualized adjusted EBITDA, even after accounting for the full cost of the $190 million acquisition of HomeBuddy. And we expect to deliver well over $100 million more free cash flow over the next 12 months. So fiscal Q3 was an exceptionally strong quarter, and we are in an exceptionally strong market and financial position. Looking at the current June quarter or our fiscal Q4, we expect growth to accelerate even more and margins to expand even further, and we expect to set new records for quarterly revenue and adjusted EBITDA in Q4. Our early view of next fiscal year, which begins on July 1, is that we expect to again grow revenue and adjusted EBITDA at strong double-digit rates year-over-year. Looking at our major client verticals. We delivered record auto insurance revenue in fiscal Q3 due to strong carrier demand and high levels of consumer shopping activity. Carriers continue to report good results. We are confident that our full market opportunity in auto insurance is still in its early innings, and we are successfully expanding our media, client and product footprints in that important client vertical. We also delivered record quarterly revenue in home services in Q3, with revenue run rates now approaching $0.5 billion annually. The work to integrate HomeBuddy and to capture synergies is going well as we continue to successfully expand our media, client and product footprints for growth in the enormous home services market opportunity. As I indicated earlier, our success continues to be driven by our industry-leading technologies and business systems, including, at their core, our AI optimization algorithms. And we are expanding the application of AI to dozens of other areas of the business, to our massive store of proprietary data generated from billions of dollars of media spend, to our millions of permutations of campaign and marketplace variables, to our proprietary integrations with clients and media, to our thousands of proprietary workflows and to our interactions with millions of in-market consumers every month. Those efforts are already delivering big improvements in performance and productivity, and we see much, much more. Let me give you a few examples of where we are successfully applying AI to our broader business system. First example. We are applying AI to integrate new and updated carrier rates faster and at greater scale into QRP, our insurance rating platform, increasing productivity there by an estimated 50%. Another example. We are using AI to generate more and better ads for creative, improving productivity in that core essential function by an estimated 400% and resulting in faster campaign launches. A third example. Our frontline employees are using AI-enabled natural language analytics to access even more of our deep trove of proprietary data and to drive deeper analytic insights and improvements in client, media and margin results with less need for analyst support or long cycle times. And one final example here. We are, of course, applying AI to dramatically improve software coding productivity across the business and tech stack. We are also seeing exciting growth in revenue from AI media and as AI grows in media. Some examples of that. First, as AI overviews have expanded rapidly over the past year to now trigger on an estimated 50% plus of Google searches, revenue from our proprietary campaigns on Google has grown by over 100% over the same period. A second example. We are an early participant in OpenAI's advertising platform, where we are already live in both insurance and home services. And one last AI media example. We are improving consumer conversions for our media campaigns and for clients due to the use of conversational AI in our web flows, chatbots and inbound calls and in SMS and e-mail communications with end market consumers. Overall, we are and have been and expect to continue to be an AI winner. Turning to our outlook. We expect revenue in fiscal Q4 to be between $350 million and $370 million, up sequentially to yet another new quarterly record and implying at least 34% growth year-over-year. We expect adjusted EBITDA to be between $37 million and $43 million, also up sequentially to yet another new quarterly record, reflecting continued margin expansion and implying at least 67% growth year-over-year. With that, I'll turn the call over to Greg. Gregory Wong: Thank you, Doug. Hello, and thanks to everyone for joining us today. Fiscal Q3 was another successful quarter, as Doug noted. It was the third consecutive quarter of record revenue for QuinStreet and also a record for adjusted EBITDA. This strong performance was driven by continued momentum and execution across our verticals. For the March quarter, total revenue was $346.1 million, up 28% year-over-year. Adjusted EBITDA was $29.6 million, up 53% year-over-year, and adjusted net income was $17.8 million or $0.31 per share. Looking at our revenue by client vertical. Our financial services client vertical represented 67% of Q3 revenue and grew 16% year-over-year to $231.8 million. Auto insurance momentum continued, delivering a record quarter and growing 27% year-over-year. Our home services client vertical represented 33% of Q3 revenue and grew 63% year-over-year to $114.3 million. Turning to the balance sheet. We ended the quarter with $102 million in cash and equivalents and net debt of $54 million. Overall, QuinStreet remains in a strong financial position, and we expect to generate strong cash flows in the coming quarters and years. We continue to have a rigorously disciplined approach to capital allocation, and we'll continue to prioritize: one, investing in new products and initiatives for future growth and margin expansion; two, accretive acquisitions; and three, share repurchases at attractive levels. We will continue to be measured in our approach and remain focused on maximizing shareholder value. Moving to our outlook. We expect revenue in fiscal Q4 to be between $350 million and $370 million, representing at least 34% growth year-over-year. We expect adjusted EBITDA to be between $37 million and $43 million, reflecting continued margin expansion and representing at least 67% growth year-over-year. With that, I'll turn it over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Jason Kreyer from Craig-Hallum. Jason Kreyer: Doug, can you talk more about the AI actions that you've taken in the quarter? You'd highlighted some relationships with Google and OpenAI. And perhaps you can elaborate on your role there and what you expect over the long term with these partnerships. Operator: I think Jason got disconnected. Our next question comes from the line... Douglas Valenti: I'm sorry, operator. This is Doug. Let me get back in. I apologize, Jason, but yes, thank you for the question. We're applying AI across the business system, as I indicated, including in media. And one of the places in media that we are active is now in OpenAI's advertising platform. They are early, but we were -- we believe we were in the first few hundred folks to actually be engaged with them and to be active on the platform. And as I said, we're active in both insurance and in home services, running advertising campaigns there to both generate revenue, of course, and we have generated our first revenues there, but also to continue to help them pilot that platform and evolve it into a much bigger part of their business and a much bigger part of everybody -- of our business as well. So super excited. As we've indicated before, we believe the LLMs are going to be a new entry point for consumers just like AI overviews on Google have been a new component, a new entry point for consumers. And we believe that it's a new great opportunity for us to plug in and do what we do, which is to help those consumers get matched to the best service providers and generate maximum media yield and revenue for all parties, including the platform companies, whether they be Google or OpenAI or others. So that's what that's about. But again, a lot of AI opportunities and a lot of AI activity going on. Jason Kreyer: We look forward to hearing more about how that evolves. Just as a follow-up, I want to ask about the HomeBuddy performance in the first quarter. And I'm curious how you felt the HomeBuddy and Modernize assets interacted over the course of the quarter and kind of how that integration is modified as we go forward? Douglas Valenti: Yes. It's going extremely well, going certainly as we had predicted and, in some ways, better. We integrated very quickly and, in the quarter, actually generated revenue from the integrations in terms of, for example, taking media from the Modernize side, sending it over to HomeBuddy to be converted into their auction basics, which will be product for their clients and vice versa, getting revenue back. So we're -- it's going well. It's going as expected, and we continue to be very excited about the expansion of our footprint, both in product and media with HomeBuddy. So in terms of changes, I think we're a little bit ahead of schedule in terms of integrating the organizations. We are a little bit ahead of schedule in terms of doing what we -- in terms of having a -- kind of a one-platform approach to the media. And so I'd say that, again, every bit as well as we hoped and, in some places, better. Operator: Our next question is from Luke Horton from Northland Securities. Lucas John Horton: Congrats on the quarter. Just wanted to touch on the auto insurance side. It looks like spending remains strong. Could you provide a little color on size of carriers and any trends you're seeing with the major carriers versus smaller guys? Douglas Valenti: Sure, Luke. We are continuing to see strength across the auto insurance client base. One of the trends that we are seeing is continued broadening. The broader base of clients grew significantly faster than the largest client, which also grew very rapidly. So there's no issues there, just a continued increased activity and broadening of demand across the client base and across the major carriers, top 10 to 15, however you want to think about them. So I'd say if there was a trend, it was just continued strength generally and continued broadening, which we've indicated previously. Lucas John Horton: Okay. Awesome. That's great to hear. And then on the kind of early fiscal year '27 color you provided with the strong double-digit revenue and EBITDA growth. I guess, could you expand on what the kind of 2 or 3 biggest drivers underpinning that outlook would be? Or what would be the biggest risk to achieving that? Douglas Valenti: Sure. Right now, we've seen preliminary numbers for next year from pretty much all of the businesses. And we've got double-digit revenue growth across the board -- strong double-digit revenue growth across the board. And in most cases, margins growing faster than revenue. And the one place where I think that's not yet indicated, it's flat margin cash revenue, but really strong growth. So some investment going on there. So no issues with that. So again, as you would expect, home services, of course, will be particularly strong early because of the acquisition in the first couple of quarters, we expect it to be strong in the back half as well after we lap the comp on the HomeBuddy acquisition. Insurance, we see strong demand from clients and continued strong development of new media capacity, which has been a good driver of our growth and margin expansion in auto insurance over the past couple of quarters. And then we're seeing, in the credit-driven verticals, good legs of growth there as well, whether it be in credit cards where we're getting strong indications from the issuers or banking where we're seeing strong demand from the clients there, and we have strong media capabilities there. And in the -- in AmOne Financial, the personal loans and debt solutions company, we've been focused on quality of revenue there. So we have not been growing that business over the last year or so, but we've been pretty significantly expanding margins. We've had some decline. We've indicated before, some decline in revenue, but pretty flat margin dollars as we've improved the quality of the revenue, and we expect to be able to resume pretty aggressive growth next fiscal year at those higher margins. So right now, it's pretty much across the board strength as we go through the detailed planning for each of the client verticals. Operator: Our next question is from Elle Niebuhr from Lake Street Capital Markets. Elle Niebuhr: So on the home services front, given the heavier implied Q4 weighting, what are you seeing in contractor demand, lead pricing, media availability? Any of that, that gives you the confidence that the seasonal ramp is playing out as expected? Douglas Valenti: We're seeing pretty much all those things, Elle. I mean the client demand continues to be extraordinarily strong. The -- and that's been consistent for a while. We have significantly greater demand than we have capacity to fill it, which is always what you want in our business, given the way we serve clients. We are making great progress on the media side with our proprietary campaigns, with the shared media between HomeBuddy and Modernize, which are the 2 brands we have in home services. And that's an area of real opportunity as both clients -- both of us take media that we don't match as well or don't have as good a coverage for, and take advantage of the new coverage, either Homebuddy for Modernize or Modernize for Homebuddy. We're seeing good growth in new product areas, continued growth in new product areas. Consumers are -- and homeowning consumers, who are the customers there, are quite strong still. The consumers has been exceptionally resilient, given the uncertainties and inflation and gas prices. I can't really say that about the low-end consumer where we -- but AmOne has solutions to help those consumers. But as far as the homeowning consumer, which are the folks that are the customers for our contractors in home services, those folks are quite healthy and quite active. So there's not really a dimension of weakness we're seeing in home services. If you look at the components that we worry about most, which, of course, media, capacity, client demand, pricing or consumer activity, consumer demand for projects. So continued strength and advantages of having HomeBuddy now to multiply that strength. Operator: Our next question comes from the line of Patrick Sholl from Barrington Research. Patrick Sholl: Maybe just a follow-up on the AI side. Can you maybe talk about like carrier adoption on that? Is that sort of -- I guess, just how carriers are spending within, I guess, maybe either in agentic format or through kind of the ChatGPT or other tools like that? Douglas Valenti: Sure, Patrick. They -- if it works for them and it comes to our platform, they're buying it. In terms of buying direct there, not yet in terms of buying, say, directly off those platforms. From what we understand and have been told, OpenAI and others are focusing primarily on marketplace providers like us initially because of the consumer choice and the content. I do expect that, over time, as their platforms and their ad platforms develop further that, of course, carriers will spend direct and there will be opportunities for them to do that. But again, as I indicated, we're early and one of the early folks working with them and one of the early folks they want to work with to help them develop their ad revenue platform and to be in a position to be able to scale that and continue to evolve it to be a big part of the channel. And I think it will be a big part of the channel. We're excited about it, as I said, as another way for consumers to come into digital. and to shop and pursue products and service providers in our verticals. So early, not a lot of direct activity from what we've seen and what we've heard, but good active planning and activities and indications that OpenAI is going to be a big player here, and we're going to be a big part of that, just like we have been with Google since the early days of the company. We launched our first campaign with Google, gosh, as soon as they -- we had SEO with them in the early days and as soon as they went into an ad-based platform, again, we were one of the first ones in that as well. So we expect this to be a pretty similar kind of opportunity and curve. Patrick Sholl: Okay. And maybe just a quick clarification on your outlook for 2027 on the solid double-digit growth. Should we be, I guess, understanding that to be excluding acquisitions as well? Or is that on a current operations basis? Douglas Valenti: We are -- we don't have any new acquisitions in that assumption. So yes, we would expect that, that would be on the current base business. Patrick Sholl: Yes, sorry, I misspoke. I meant like would that be pro forma for acquisitions or just... Douglas Valenti: No acquisitions in that. No acquisitions in that plan. Patrick Sholl: Okay. All right. And then lastly, just on the other financial services verticals. I think you kind of touched on this a little bit, but those don't seem -- are those like being impacted at all from the rate environment or the macro, I guess? I think like some appliance manufacturers have cautioned on the consumer spending side. And I'm just kind of curious on how that might be flowing through on from consumer demand. Douglas Valenti: Sure. No, we're seeing a mixed bag, mostly good for us. The AmOne Financial business is really positioned to help consumers on the lower end of the spectrum access capital in the form of personal loan or deal with debt problems in the form of debt settlement or credit repair. And so, unfortunately, in some ways, there's still a lot of consumer demand and appears to be growing consumer demand there. Credit cards, we only really serve prime and super prime consumers. We're not in the lower income spectrum of cards or credit development cards or anything like that. So those consumers continue to be very robust, and we have not seen issues there. On the deposit side, similarly, folks have money to put into savings accounts, high-yield savings accounts or CDs or other platforms, annuities and other. They tend to be consumers that are in the middle to upper income spectrum. So continues to be strength there. We've seen some -- I guess if there was something to look out for, I'd say that there's probably a little bit less activity by source of funds clients than there would be if the interest rate path were clearer. I wouldn't say that's something that's fundamentally going to change our outlook or is a big risk to the business going forward. But I'd say that that's something that -- it's probably not as robust as it would be if everybody knew that rates were either going up or down. And you can imagine why, right? They don't want to commit to a CD rate until they know where rates are going and they have to decide what their interest margin is going to be when they develop those products and when they recruit consumers for those products. But generally speaking, what you've heard from everybody, pretty stable, strong consumers, generally, particularly middle and upper income. The consumers at the lower end of the income spectrum are getting squeezed because of inflation, because of gas prices, which disproportionately hurt them and because of relatively low wage growth. But relative to -- as you position that against our business, that's a pretty good profile for the products that we serve. Operator: [Operator Instructions] Our next question is from Naved Khan from B. Riley Securities. Ethan Widell: This is Ethan Widell calling in for Naved Khan. To start off with, can you maybe add a little bit of color on just what you're seeing on the macro side for auto? I imagine that elevated oil prices pressing on discretionary budgets might cause less driving, more -- it's better for carriers, maybe more shopping for rates, but just wondering kind of what you're seeing along those lines. Douglas Valenti: I think both of those things. What we're seeing at our level is continued real strong demand and carriers wanting us to do more and figure out how to get more. But I think, at a macro level, I think you hit on it there. The carrier loss ratios are very healthy. They -- the indications we've gotten from them and from the industry is that they feel like they're rate adequate. And I think that the effect of higher gas prices is likely to be less driving, which means less -- the rate of incidents will be lower, which is going to be good for them because, as you said -- because there's likely to be fewer incidents and fewer claims. And the other thing that is absolutely a factor in auto insurance is that consumers shop more when they're under financial pressure for auto insurance because they want to see if they can save money because they have to have it, but they want to make sure they're not paying more than they have to pay for it. So shopping activity tends to be at pretty high levels. And we have seen good strong shopping activity, certainly through the peak shopping season, which is always in the kind of February-March time frame. But generally speaking, we're seeing a good strong consumer activity. Ethan Widell: Got it. And then kind of longer term, how do you view or maybe anticipate, like, your mix shift over time as you take into account kind of various growth rates in your verticals, but also layering in HomeBuddy to that? And how do you consider that in terms of maybe long-term margin possibility? Douglas Valenti: Yes, it's a great question. I think the theme that we'll probably see over the next few periods, and I'd say that's probably certainly quarters and maybe years, is that a little bit more normalization of the mix. And what I mean by that was the spike in auto insurance really caused auto insurance to be super heavy in our mix there for a period of time. And one of the reasons our margins -- and we said before, auto insurance, at its scale and with its structure, tends to come in at a little bit lower media margin percentage than our average. And so that shifted our margins down some. But as the greater growth in auto insurance has normalized after that -- the rapid expansion of 1.5 years, 2 years ago, and the other businesses continue to grow strongly, you're seeing the mix shift back to -- gradually shift back to a more normalized level where the auto insurance won't be as dominant, which means that there will be a natural lifting of our media margin profile, which will be -- should be a natural upward tug on EBITDA margins. And I've said before that there are kind of 3 things that are going to -- that are causing us to expand margins, have caused it over the last few quarters and are likely to continue to do it, including as we forecast next quarter. One is that mix shift. After kind of getting a heavy mix of auto insurance, that mix is going to more normalize and that will be a natural upward move in our media margin profile, which translates fairly directly to EBITDA margin since our fixed cost base is semi-fixed. The second is going to be continued success in expanding our auto insurance margins, which have been -- are up 4 to 5 points this year over the beginning of the year, largely due to a lot of specific projects to do that as well as the development of proprietary media that we said we were going to develop, and we spent a lot of money and invested in developing and have very successfully developed. We're going to continue to do that. And that's been very, very beneficial to us and to our margins in auto insurance. And the third is just natural operating leverage. I mean, as we grow at these rates on the revenue and therefore, margin dollar lines, but of course, don't grow at these rates on the semi-fixed cost lines below the margin -- the media margin lines, then you have a natural expansion of margin, top line leverage or operating leverage, depending on how you want to talk about it. So those 3 factors, I think, are going to continue to play a role, certainly next quarter and probably for a considerable time going forward. Operator: There are no questions at this time. Thank you, everyone, for taking the time to join QuinStreet's earnings call. Replay information is available on the earnings press release issued this afternoon. This concludes today's call. Thank you.
Operator: Good afternoon, ladies and gentlemen, and welcome to Informa TechTarget First Quarter 2026 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference call over to Charles Rennick, General Counsel and Corporate Secretary. Please go ahead. Charles Rennick: Thank you, and good afternoon, everyone. The speakers joining us here today are Gary Nugent, our Chief Executive Officer; and Dan Noreck, our Chief Financial Officer. Before turning the call over to Gary, we would like to remind you that in advance of this call, we posted a press release to the Investor Relations section of our website and furnished it on an 8-K. You can also find these materials on the SEC's website at www.sec.gov. A replay of today's conference call will be made available on the Investor Relations section of our website. Following opening remarks from Gary and Dan, they will be available to answer questions. Any statements made today by Informa TechTarget that are not historical, including during the Q&A, may be considered forward-looking statements. These forward-looking statements, which are subject to risks and uncertainties, are based on assumptions and are not guarantees of our future performance. Actual results may differ materially from our forecast and from these forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, including those discussed in the Risk Factors section of our most recent periodic report filed on Form 10-Q and the forward-looking statement disclaimer in our earnings release filed earlier today. These statements speak only as of the date of this call, and Informa TechTarget undertakes no obligation to revise or update any forward-looking statements in order to reflect events that may arise after this conference call, except as required by law. Finally, we may also refer to certain financial measures not prepared in accordance with GAAP. A reconciliation of certain of these non-GAAP financial measures to the most directly comparable GAAP measures to the extent available without unreasonable efforts accompanies our press release. And with that, I'll turn the call over to Gary. Gary Nugent: Thank you, Charlie, and good afternoon, everyone. As always, we appreciate you taking the time to join us today. I am pleased to share our Q1 2026 results, which demonstrate continuing progress with our strategy and our commitment to delivering top and bottom line growth on an ongoing sustainable basis. In Q1 2026, we delivered revenues of $106 million, representing a 2% increase year-over-year, whilst achieving an adjusted EBITDA of $7.4 million, an increase of 27% year-on-year. These results reflect the durability of our business model, a model that is built upon our proprietary first-party market data and our permission membership data. They are also the reflections of the early returns of our combination program completed in 2025. From today, we also report the results of our 2 operating segments, Intelligence and Advisory; and Brand to Demand, offering deeper insight into the makeup of the business and the key drivers of growth. I see durability as Q1's results, and I suspect the remainder of this year are set against the backdrop of ongoing geopolitical and macroeconomic uncertainty in addition to the broader digital transformation that is accelerating across B2B markets as AI changes, how buyers are informing their buying journey and how sellers are reaching out and trying to stand out to prospects and customers. I spent much of Q1 and April on the road, meeting with clients and colleagues. It's always my favorite thing to do. In the main, our clients who are B2B technology vendors are in good health. However, they continue to prioritize capital to R&D investment as they seek to stay current with the AI arms race. This is subduing investment elsewhere for now, specifically in go-to-market. However, as a future indicator of demand for our business, it is incredibly positive. And ultimately, they will need to seek a return on those R&D investments. Our story of the indispensable partner with the breadth and scale to enable our clients and address their ambitious growth objectives resonates loudly. And it's clear that we are only just scratching the surface in terms of how and where we can help them accelerate their growth and in doing so, drive our own growth. The trends we are observing and the needs and wants of our clients directly correlate to our strategic focus. First, -- our clients are themselves experiencing the impact of the shift from a search engine economy to an answer engine economy. And as such, their ability to raise awareness and generate demand by and of themselves is becoming more difficult. And with that reality, they are increasingly recognizing the value of working with a partner that itself has direct reach and relationships and influence with the prospects and customers. Second, there is a growing realization that better marketing outcomes are achieved when the marketing effort is aligned and integrated across the life cycle, from strategy through to execution and that the breadth and scale of Informa TechTarget makes us one of the few companies that can deliver value across that life cycle. This is encapsulated in our unified demand playbook that we launched at the beginning of Q1 and which has been very well received in the marketplace. And finally, we're seeing clients prioritize working with partners that can integrate seamlessly with their sales and their Martech landscape and then join the dots in terms of attribution to demonstrate measurable performance and return on investment from their marketing investments. Again, that is something that we can provide and are getting increasingly good at, further differentiating us from others. In numbers, revenues from our strategic focus on our largest customers, who are the largest players in the industry we serve were up double digit as a result of this focus and the investments in product, sales, delivery and customer success in Q1. Staci Gullotta, our new CMO, has gotten her feet well and truly under the table, launching a bold and ambitious marketing strategy designed to raise awareness and generate demand in the broader $20 billion addressable market. As a part of this, we recently leveraged the Forrester B2B Summit in Phoenix to showcase how we are leveraging the breadth and scale of Informa TechTarget to partner with our clients and transform their go-to-market and deliver tangible results. One example of this was the work that we've been doing with Tanium. Tanium are a cybersecurity company that helps enterprises manage and protect mission-critical networks. Tanium partnered with Informa TechTarget to move beyond a fragmented siloed marketing approach towards a fully integrated always-on, go-to-market model, choosing us not just as a vendor but as a strategic partner for our unmatched audience access, high-quality intent data and ability to influence buying groups before their sales teams are engaged. By activating our platform across portal, BrightTalk, content syndication and targeted editorial environments, they were able to precisely identify and engage in market accounts at scale. The results were substantial, over 5,000 leads delivered, equating to $1.2 billion of influence pipeline, an ROI of over 2,800 times. And importantly, this has translated directly into real revenue growth. As a result, they signed a new 2-year deal immediately following the program, representing over a 50% increase in their annual investment. On the subject of our membership and our audience members, as buyers increasingly rely on AI-powered research and zero-click search behaviors, we fundamentally adapted our operational approach to meet them where they are. Our content creation and distribution strategies now prioritize AI discoverability while maintaining the editorial excellence and thought leadership that our audiences have come to expect. With a focus on quality over quantity and engagement over acquisition, this dual-focus continued to deliver for us in Q1 with our permission membership continuing to grow in low single digits and our active membership in priority personas, such as Chief Information Officers and Chief Information Security Officers, up high single digits in the quarter. This all being despite ongoing disruption to traffic. In addition, we added four leading U.K. media-based brands to our portfolio through the period. Accountancy Age, the CFO, Bob Guide and the Global Treasurer. This expands our first-party permission members in the financial services and Fintech space and is in line with our strategy to grow by extending our vertical audiences into new geographical markets, and we're already seeing strong engagement from these new community members. And in recognition of the power and the value of our authoritative, trusted and original content in the age of AI, our editorial teams recently won 3 coveted awards at the B2B Industries Oscars, the Neal Awards. And we've also been shortlisted for 15 awards at the forthcoming ASB Nationals. On the product front, our investment in the product pipeline continues to bear fruit. By popular demand, we launched the new BrightTalk nurture demand product with 12 customers piloting this new offering in Q2. We also announced to the market the commercial partnership and technical integration of our NetLine demand product with the Demandbase ABM platform. In direct response to the shift from a search-based to an answer-based economy, we have leveraged all of our experience as a digital publisher to launch our AI LLM content audit and consulting services designed to help clients understand how discoverable and citable their content is and to work with them and how to improve upon it. And only last week, we launched the Omdia AI Search Assistant, a further example of how we are leveraging AI technology to improve our products to improve upon how our customers discover and consume our original authoritative content and extract maximum value from their subscriptions. The Omdia AI Search Assistant enables our clients to submit natural language queries to the Omdia Knowledge Center and receive answers that are in an intelligent composite of all Omdia's data and analysis. They can also return those answers in over 70 languages, increasing the global applicability of our product. This launch builds upon what were already very encouraging KPIs in the Omdia business, with users, user engagement and the Net Promoter Score all up double digits in the first quarter. And as we move through to the second and the third quarters, you will see more examples of how we are applying AI technology, specifically conversational interfaces to our data and content that will improve discoverability, ease consumption and unlock value for our clients and our members. And in June, our AI search for our audience members will undergo a significant upgrade based upon the lessons learned from the pilot of the past 6 months, further improving the audience experience. We're also leveraging automation and AI technology and tools extensively across the business to improve upon our productivity and quality in marketing, and sales, and research, and editorial, and operations, and our experience is that this is a game of continuous improvement, and we're already banking clear benefits. By way of example, in Q1, our time to first lead for our core demand products decreased by 38% year-on-year, accelerating time to value for our customers and accelerating time to revenue for ourselves. I think Q1 demonstrates delivery to our plan financially, strategically and operationally, growing our revenues and adjusted EBITDA, simplifying and focusing the business, embracing and capitalizing upon the opportunities that AI presents. Our priorities for 2026 are clear: deliver value to our customers and growth for our shareholders. This will give us the momentum and put us in a strong position to continue to invest in innovation and build upon our core strength of trusted expertise, proprietary market and permissioned audience data and a unified portfolio of products with the breadth and scale to deliver for customers across their life cycle. We are wholly committed to this plan and to growing revenues and adjusted EBITDA in 2026. I look forward to updating you on our continued progress in the quarters ahead. And now I'll turn the call over to Dan to discuss our financial results and guidance in a little more detail, and then we'll be happy to take your questions. Daniel Noreck: Thanks, Gary, and good afternoon, everyone. In the first quarter of 2026, we delivered revenue of $106 million, representing approximately 2% year-over-year growth compared with the first quarter of 2025. While market demand remains subdued and the environment cautious, our results reflect solid execution and early benefits from our sharpened operating focus following the combination and organizational realignment. As Gary mentioned earlier, we are now reporting our results through two operating segments. In brand and demand or the B2D segment, which represented around 70% of total revenues and is where we generate revenues by providing clients with services that help them raise brand awareness, engage with buyers and target more qualified potential customers, we saw good revenue growth of around 5% year-over-year with particular strength in our unified demand offering. In Intelligence and Advisory or the I&A segment, which represented around 30% of total revenues and is where we generate revenues primarily through subscription services to our intelligence products, including first-party data and specialist analyst research content as well as advisory services that provide clients with strategic support and bespoke solutions, our revenues were around 4% lower year-over-year, primarily reflecting a decrease in our go-to-market strategic consulting. Both segments improved profitability in terms of segment operating income, which we define as being revenue less allocated direct and indirect costs, but prior to unallocated costs such as central functions, facility and related overhead expenses. Operating margin also improved for both segments. Encouragingly, we delivered company adjusted gross -- adjusted EBITDA growth of 27% year-over-year to $7.4 million with an adjusted EBITDA margin of 6.9% compared with 5.6% in the prior year. This improvement reflects continuing cost discipline, the streamlining of operations and the initial realization of integration efficiencies following last year's combination plan even as we continue to invest selectively in growth, product innovation and go-to-market capabilities. On a GAAP basis, our net loss narrowed to $70.8 million. This included a $45 million of technical non-cash impairment of goodwill as well as ongoing acquisition and integration costs and other non-cash charges. Turning to the balance sheet and liquidity. We are in a strong financial position. We ended the quarter with cash and cash equivalents of $47 million and had almost $130 million undrawn on our $250 million revolving credit facility, giving us liquidity of approximately $178 million. Our net debt at the end of March of around $72 million represented around 0.8 adjusted EBITDA for the prior 12 months, similar to the leverage level at the end of 2025 and the end of 2024. Our free cash flow in the quarter reflected the seasonal dynamics of the business as well as the phasing of integration and restructuring activities from 2025. On an adjusted basis, we delivered meaningful cash flow, demonstrating the attractive underlying cash generation characteristics of our business model. Turning to guidance. We are reiterating our commitment to deliver growth in 2026. To this end, we are maintaining our full year 2026 adjusted EBITDA guidance of $95 million to $100 million. We are pleased with the progress we've made simplifying the business, improving operational efficiencies and positioning the company for growth. While the macro environment remains uncertain, we continue to see opportunities to expand customer engagement, increase wallet share and improve margins as the year progresses. In summary, Q1 represented a solid start to 2026 with revenue growth, adjusted EBITDA improvement and continued progress integrating the business and sharpening our operating focus. We believe we are well positioned to execute through the remainder of the year and deliver on our financial objectives. As a reminder, our financial model is built to scale efficiently. As we return to growth, every additional dollar of revenue delivers substantial incremental margin, giving us the ability to grow profitability and free cash flows significantly over time. And with that, we're now happy to answer your questions. Operator, will you please open up the line for Q&A. Operator: [Operator Instructions] Your first question is from Bruce Goldfarb from Lake Street Capital. Bruce Goldfarb: It's Bruce. Congratulations on the solid quarter. So the first is, are any inflationary pressures in the business that would put your $95 million to $100 million EBITDA guide at risk? Daniel Noreck: Bruce, thanks for the question. This is Dan. I don't think we're seeing anything out of the ordinary from inflation that would put that at risk right now. We're still very confident, which is why we reiterated the $95 million to $100 million adjusted EBITDA target. Bruce Goldfarb: Great. And then how are growing AI search volumes impacting your membership sign-ups and paid subscriptions? Gary Nugent: So I'll take that one, Bruce. Nice to talk to you. Well, I mean, we've talked about this on occasion actually in the past. We've certainly seen the shift in traffic and the mix of traffic that we receive as a business as search has become disrupted and Answer engines are becoming more prominent. We continue to see that Answer engine traffic converts at a much higher rate to membership than search traffic used to. But interesting enough, we're also seeing search traffic conversion rates improve as well. I think that's largely as a result is that what we're now getting from search is still more qualified. Effectually, what you're beginning to see is that the effect of an Answer engine environment is that it qualifies out people who are not really serious researchers and serious buyers. So actually, the reality is that whilst traffic might be disrupted and down, because conversion rates are up, we're still seeing solid membership and therefore, our membership is modestly growing. And in particular, the membership and the activity of members who are the key personas is growing quite nicely. Bruce Goldfarb: My next one, how are churn rates trending in the small to medium enterprise market segment? Daniel Noreck: Bruce, this is Dan again. So from a churn perspective, obviously we don't show those metrics. But what I would say is that the churn is still higher, clearly because our portfolio accounts have grown. So we are seeing a bit more churn at the lower end of the range. But what I would say to that is we're starting to see a stabilization of that. And so it gives us confidence as we look out for the rest of the year as it relates to those particular client segments. Bruce Goldfarb: Great. And my last question, how is business trending internationally in EMEA and APAC? Gary Nugent: I'll take a look at that. I spent a couple of weeks. I was on the road for some time. I was actually in APAC traveling through Singapore and then through Shenzhen and Beijing in China before finishing off in Seoul in Korea. I would say that actually, the environment was encouragingly optimistic and building. I mean the vast majority of our business in that part of the world is the intelligence and the advisory business. But there's certainly a huge amount of demand from APAC companies to grow their business internationally and to expand into markets such as the United States and Europe, and that's a great opportunity for us. And similarly, there's still an appetite from big American brands to build their business, particularly in markets like Japan and Korea. So generally speaking, I was actually really encouraged by the demand there. And I would say that the business has been trending inline with the rest of the business actually in the first quarter, no sort of material difference in pattern. The one obvious exception to that is the Middle East and Africa region as a result of the ongoing situation in Iran. That there, we've definitely seen customers begin to slow down their investments and slow down their decisions. Operator: Your next question is from Jason Kreyer from Craig-Hallum. Unknown Analyst: This is Thomas on for Jason. I know you touched on it a little bit, but could you give a little more commentary on the environment you're seeing for software sales, particularly like a Priority Engine that has more of a recurring nature to it? Do you feel like tech companies are still sort of hesitant to lock-in longer-term deals? Gary Nugent: I actually -- I'm going to pick up on that subject more broadly. I would certainly say that we've definitely seen the multiyear environment is not as strong as it was 2 years or so ago. That's definitely true. We're seeing customers, and we've said for some time that customers are shortening their contractual commitments really through 2025 and I don't think that's really -- it's not picked up in 2026. It's interesting in what is potentially an inflationary environment because usually, there's a bit of tension in the marketplace between customers wanting to lock in pricing for multiple years vis-a-vis making those long-term commitments. So it will be interesting to see how that plays out. I think generally, in terms of commitments to software in general across the marketplace, I haven't really seen a lot of change in the customer's appetite. But one of the things that we have spoken about is the need for us to actually integrate our data directly into our customer's platforms. especially in the intent space as customer's Martech stacks and sales tech stacks have become more mature and more settled, it's absolutely imperative that you are able to integrate and play nicely with their environment. So we -- you heard us talk about this a lot when we're talking about the investment in the Intent product is that actually a lot of our investments are now on the subject of integration and -- integration, not just with APIs, but also increasingly with MCPs in the AI world. And that's really where I think the game is being played now and the game will be played in the future in 2027. Unknown Analyst: Great. That's helpful. And then maybe just one follow-up. With the moves you made to position NetLine in a more down market, does that carry any incremental churn or volatility? Or do you still have pretty good visibility into NetLine production? Gary Nugent: NetLine continues to perform incredibly well for us. It's a very exciting story within the company, and it's going from strength to strength. As we said, we have done a very thorough analysis -- forensic analysis to see whether it was cannibalizing any of the business elsewhere. And actually, that's not the case. These are different customers. They are different personas within our existing customers. They are different budget pools. It forms part of the unified demand portfolio and in actual fact, the unified demand story that we're now telling where we have, I think, the broadest portfolio of demand products to meet any demand problem a customer might have is playing really nicely for us. Operator: [Operator Instructions] There are no further questions at this time. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may now disconnect your lines.